The next time you find yourself feeling saddened about a commercial property that’s falling apart and has seen better days, consider doing something about it! Repositioning a commercial property is actually more feasible than you might think – and makes a lot of sense. So regardless of whether you have your eye on a commercial property that needs some serious TLC or you want to reposition your current commercial property for a quick sell or just to give yourself some working capital to fund future streams of income, get to know the concept behind repositioning real estate.
Repositioning adds value to the commercial property
As you consider repositioning your commercial property, a lender will assess the physical condition of the property along with its financial feasibility. Most of the time, the two dimensions go hand-in-hand: if a property is run-down, oftentimes it means the property is in financial dire straits and vice-versa. Think of repositioning as a universal reset button for the property. If done correctly, a repositioning will ensure you are charging the proper rate to a tenant, it needs minimal maintenance, it’s pleasing to the eye, etc. It allows you to know the property’s value and to begin earning an appropriate income based on said value.
Repositioning your commercial property doesn’t happen overnight, of course. A building condition assessment (BCA) is conducted by an engineer that will determine what needs to be fixed and how to fix it. A BCA identifies, documents, and exhausts every detail, too. From documenting electrical issues to parking problems and everything in-between, think of a BCA as a formula and roadmap you can use to bring the commercial property back to its former glory.
Once you have the details, you must decide where the improvements must be made. Keep in mind that the cost of repairs may dwarf what you can borrow. Thus, you must determine how much money to allocate to fix the overall property. For example, if you are repositioning a multiplex, do you need to renovate every single unit at once, or does it make more sense to renovate a few units, fill them, and use the capital to fund further renovations? This is where your experience with real estate will come into play…
Always have an exit plan
Before committing to a repositioning, both borrower and lender must determine what the future cash flow looks like and how much value the commercial property is worth after the process is complete. Borrowers will either want to sell the commercial property outright or refinance with their lender to set themselves up with long-term capital they can borrow against in other ventures. The exit strategy – whatever it may be – needs to be realistic and honoured by both the borrower and lender. For example, we use real data along with our own experience with repositioning commercial properties to ensure we know that the moment we agree to a repositioning, we can clearly see where the endgame will lead us. This ensures that there are minimal surprises, all parties are on the same page, and the repositioning can ultimately be successful.
We want to speak to you about repurposing a commercial property of your own. If you’re eager to revitalize your own commercial property or another you see great promise in, reach out to our team today. From there, we think you’re going to be surprised by what an asset repurposing can be to your working capital.