Investing in Distressed Commercial Properties

Introduction

• Distressed commercial properties are attractive due to lower prices.
• Potential significant returns, but require careful evaluation.

How to Find Distressed Commercial Properties

Online Platforms

• Crexi.com: A commercial real estate MLS equivalent, useful for finding foreclosures.
  • Search using keywords like "foreclosure" to find properties in distress.
  • Offers a list of nationwide properties under foreclosure or bankruptcy.
  • Foreclosures: Owners set to lose properties, offering purchase opportunities.
  • Properties often unpriced; typically auctioned by banks.

Example Property Analysis

• 60-unit apartment complex
  • Price: $1.5 million.
  • Type: C-Class multi-family, 34.44 cents/sq ft.
  • Low occupancy (30%), potential management or structural issues.
  • Bank owned foreclosure; auction terms apply.
  • Auction terms: 10% down payment, 30 days to close.

Map Search

• Use map feature on Crexi to find local distressed properties.
• Example: Property in Nashville vs. land in Asheville (less attractive due to auction terms).

Keyword Search

• Use keywords like "distressed" to find broker-listed properties.
• Example: Days Inn hotel
  • Price: $2.5 million, $50/sq ft.
  • Characteristics: 5 stories, 100 rooms, waterfront location.
  • Description: Distressed, vacant, needs cosmetic updates.

Considerations When Investing

Why Properties Are Distressed

• Investigate reasons: cash flow, management issues, location, zoning changes.
• Conduct due diligence to avoid insurmountable issues.

Conversion Opportunities

• Consider converting properties for alternate uses (e.g., hotels to multi-family housing).
  • Zoning may permit or restrict certain conversions.

Bank-Owned REO

• Approach banks directly for Real Estate Owned (REO) properties.
• Banks seek to quickly offload foreclosed properties.

Working with Brokers

• Engage commercial real estate brokers who liaise with banks and property owners.
• Brokers help avoid foreclosure sales and manage bank-owned property sales.

Conclusion

• Finding distressed commercial properties is feasible through various methods.
• Potential for profit, but requires readiness for renovations and operational challenges.
• Ideal to partner with experienced investors for guidance and expertise.