Industrial Warehouse, Northeast

Early Engagement and Open Communication with Servicer Pay Off

Background

Client’s older industrial property was in a market with an approximate 20% vacancy for light industrial users. The lease for a major tenant (who occupied 40% of the space) was maturing. The Property owner was unsure whether the tenant would stay or move to a more updated space where they would have additional amenities like a cafeteria and fitness facility. In efforts to appeal to the tenant, the Owner prepared renderings and engineering schematics for proposed tenant improvements. The Owner, uncertain about their ability to retain the tenant and risk of losing the property to the Lender, proactively engaged The Henley Group.

Challenges

  • Because the property was located in a suburban area with an industrial vacancy rate of 20% and tenants were hard to come by, there was every incentive to keep existing tenants in place
  • The Owner’s total repositioning costs (to update the space and to pay leasing commissions as well as update the exterior façade of the building) when combined with outstanding mortgage debt far exceeded the value of the stabilized building. Because of this, the Owner was reluctant to invest additional capital without a principal reduction.
  • Ultimately, the tenant decided to vacate the space leaving 50% of the property empty, with no replacement tenant
  • The Owner’s reputation was strong in the Northeast commercial real estate space so it was important that this property be retained
  • Execution

    THG worked in concert with the Owner and kicked off early dialogue with the Lender. We kept in close contact with the Servicer, providing them with a flexible and viable alternative to foreclosure. With lines of communication open, we turned over all excess cash flow and were transparent about our client’s prospects. These strategies were key in helping us develop a deal.

    Outcome

    In this situation, our early engagement, candor about the Owner’s situation, and the quality economic offer allowed us to secure a discounted payoff. The loan was paid off at 58% of the original loan balance.

    Additionally, the Owner needed more time to get the exit financing completed, so, while documentation was underway we were also able to negotiate two extensions with the Servicer.

    We do our homework on every client’s deal. Communication and negotiation with a Servicer varies depending on a variety of factors. Need a team who builds an effective and focused dialogue? Contact The Henley Group