Commercial short sale opportunities are being presented to investors all around the country. The pressure on business from the high residential foreclosure rates and mortgage woes have put weaker business properties into distressed situations.

Properties that are mis-managed or suffering from previous poor decisions in better times are missing their mortgage payments and approaching foreclosure.

Far from an indication that they are not good properties for investment, it’s related more often to management or expenditures made in better times that are now coming back to haunt their owners.

Basic Short Sale Concepts

Commercial short sales are similar in the basics to residential short sale situations. The owner of an income-producing commercial property is having trouble making their mortgage payments, and the lender is threatening further action.

It isn’t a foreclosure yet, and a buyer may create a great purchase opportunity by stepping in and relieving the bank or lender of the costs and hassles of foreclosure.

A buyer in a residential short sale provides the lender with comparable sale data, current comparable property listings, and other data to support an offer significantly lower than the current mortgage balance.

The homeowner/borrower helps by providing documentation of their distressed financial status and eminent foreclosure or bankruptcy. The goal is to get a deep discount deal from a bank or lender wanting to avoid the foreclosure process.

Commercial Short Sale Specifics

In commercial rental properties, whether office complexes, shopping malls, or other property types, the cash flow is the primary valuation factor and lending decision component. It could be assumed that the property wouldn’t be in a short sale position if the cash flow was as it should be.

This could be the case, but it needn’t be because of factors outside the owners’ control. Poor management or decisions on major expenditures could create drains on otherwise good rental income flows.

There is also the strong possibility that the property in mortgage trouble has been subsidizing other losing investments of the owners. As these other property situations deteriorate, an otherwise very desirable property is unable to stay afloat because its cash flow is being drained to fund other poorly performing investments.

When an investor can uncover an opportunity like this and negotiate a successful short sale with the lender, an excellent investment is the result.

Commercial short sale opportunities do require a high level of due diligence, but it can be very well worth it.

I’ll share more with you soon…

Warm Regards,

Karen Hanover, CCIM Candidate
Apartment Education Institute, President