Troubled assets are like health problems. The quicker one acts, the more likely the asset will be saved. The big issue is that like health problems, assets do not come right out and tell you that they are distressed. As a lender, you have to determine whether the asset needs help. We Make Lenders Whole is a site sponsored by EpiCity Real Estate Services in Atlanta, Georgia, to help lenders understand and manage troubled assets in order to limit losses and maintain profitability. We will start by explaining what a troubled asset is and how to spot it.
A troubled asset has many different names. A few examples are “Challenged Assets,” “Distressed Assets,” and “Distressed Investments.” Troubled assets are defined by being assets for which banks have overpaid in the form of a loan, to a borrower who cannot afford to pay it back. In many instances troubled assets are secured by collateral that is worth less than the value of the loan, leaving a lender in a difficult position. A lender can sell for a loss, hang on to the asset in the hopes it will appreciate or hire a company, such as EpiCity, to manage the investment until it becomes profitable once again.
The first step in dealing with any issue is first recognizing that there is a problem. Spotting an asset that is headed for trouble takes a little detective work.
- Is the borrower starting to have late payments?
- Are the occupancy rates of the asset in decline?
- Are new tenants less creditworthy?
- Is there high tenant turnover?
- Does the borrower reinvest in the property?
- Are the grounds being properly cared for?
- Has the lawn been mowed recently?
It may be worth speaking with a tenant and asking them questions regarding the situation. Protecting your investment is important so recognizing early that the asset is challenged is worth the time and effort. Realizing that there is a cycle of decline in regards to the asset and seeking help will minimize losses and protect your investment. As a lender, if you have any questions regarding an asset you own that may be headed towards trouble or questions about troubled assets in general, feel free to contact Tom Stokes for more information. Call 404-995-9494 or email tstokes@epicity.com.