As the commercial real estate market begins to show signs of stabilization, particularly in the New York metro area, savvy investors are rushing to find opportunities to position themselves for the rebound they expect to occur at some point in the not so distant future.
The most obvious opportunities of significant appreciation and returns are in distressed assets. While the financial structure of these assets might be in shambles, their underlying fundamentals, including location and quality of construction, are very much in tact and poised to recapture their value as the market continues to recover. As a result, every good deal has multiple bidders and the competition to source new deals is fierce.
One of the primary ways that asset owners and lenders are attempting to salvage their distressed assets and recreate their value is through asset recapitalization. This recapitalization is usually accomplished by the infusion of new equity to replace the original equity that has in most cases been wiped out as a result of a significant drop in the underlying asset value. The recapitalization must be implemented with the agreement of the primary and secondary debt holders in the capital stack. These debtors often agree to take a discount on their original loan in the hope of eventually recouping the entire amount when the asset regains full value.
An asset recapitalization doesn’t necessarily mean that the original equity holder or sponsor, whose equity has been wiped out, is left with nothing. In many cases the new equity partners are willing to allow the original sponsor to rebuild some of their equity in exchange for managing the asset.
For example, in a distressed $56 million prime NYC location development deal that Berko & Associates is currently negotiating, the institutional equity partners that the firm brought into the deal are willing to take a discount on their capital infusion to maintain the original sponsor as manager of the property, allowing him to recreate equity in the project again.
In another distressed Class A, 300,000 SF, $100 million shopping mall in default since 2009, Berko & Associates used its international connections to find an Israeli investment company to infuse new capital and revitalize the asset.
The opportunities for creating value from distressed assets is there, but the competition for those opportunities is fierce. Berko & Associates has the experience at negotiation and structuring asset recapitalization plans that has proven beneficial to owners, lenders, and equity partners. Berko & Associates also has the local, national, and international connections required to find the right equity partners for even the largest and most complex deals.
Contact Berko & Associates today to find out how to successfully recapitalize your assets and recreate your equity and asset value.
Comments are closed 
