Acquiring distressed assets is nearly a separate skill due to the different motivations of all parties, the impacts to the physical plant, the financial concerns of a possibly insolvent seller, and all of these items to be conducted on an extremely abbreviated timeline.
When a seller starts to face a liquidity shortfall, they will often forgo routine maintenance as a start. When larger shortfalls continue to persist, they may reduce staff, cut essential vendors and defer regular owed payments. Eventually, these late payments will reach the debt lender who can 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 their 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
- Vendors
- Inspections
- Survey
- Legal
- Accounting
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.
