Acquiring distressed assets is a complex endeavor due to the different motivations of all parties, the impacts to the physical property, the financial concerns of a possibly insolvent seller, and the need to complete the process on an extremely abbreviated timeline.
When a seller starts to face a liquidity shortfall, they will often forgo routine maintenance. When larger shortfalls begin, they may reduce staff, cut essential vendors, and defer regularly owed payments. Eventually, these late payments will alert the debt lender who can then force a sale.
Depending on the severity of the cash flow issues, these impacts may occur in 2-3 months or may stretch over a period of years. The end result is always the same: a deteriorating building with significant deferred expenses and a lender pushing a sale to protect its interest.
As a potential distressed asset buyer, you should prepare your team to act quickly and decisively. At a minimum, we suggest the following:
- Entity Formation (LLC)
- Letter of Intent
- Financial Commitments
You must decide who will be the “quarterback” of this operation because delays of 2-3 days can cause missed deadlines and lost funds. The team at Ronald Rohde Law can play as large or as little a role as you need.