How then should we prepare and plan to take advantage of these inevitable opportunities?

Depending on whether we are actively looking for a distressed asset or there is a possibility of being handed one by default or bankruptcy, we need to be prepared with a plan to take advantage of the situation. Unquestionably, taking over an asset will cost money. With the proper plan, these costs can be minimized and most likely even recovered with whatever our company decides to do with the facility.

The first part of a distressed asset plan should focus on preserving its value. Because distressed assets come in many shapes and sizes all plans should be flexible but include at least the following three parts. The information obtained from these steps will provide an informed decision and decisive plan.

1. Site inspection — Knowing the condition of the facility enables the prospective owner to develop the best strategy for using or selling the asset. A site inspection by a competent inspection team with experience in construction and/or management of that type of facility should be completed. Often the team includes an operations manager from another facility or a third party expert such as Hill International. Information contained in the report must include the status of construction, life safety equipment, and the overall site conditions.
2. Protection of the facility — One of the key and possibly most overlooked steps is whether there are immediate steps that must be completed to protect the facility and the public. As a Purchaser or a Lender; unfunded and unanticipated operational costs are a very real challenging issue. Protection items should include making sure all of the life safety equipment is active (i.e. sprinklers, fire alarm and security). Validating that the building is protected against the weather, the air conditioning is operating as a protection from mold growth and even items as small as if the garbage is being collected. Piles of debris outside the front entry can seriously impact public opinion and the value of an asset.
3. Cost to complete or remediate — The third step is evaluating the cost of items required to finish or repair facility items. If the facility is partially finished, what will it cost to finish construction? Are there any liens on the project? How much is the general contractor owed and are they even willing to finish the work? Is there substandard construction that will require repairs or replacement? These items should be analyzed through a cost to complete analysis. Developing construction costs should be done by an experienced team of professionals. Even if you have the in-house capability to prepare a construction estimate, we recommend hiring a third-party expert experienced with distressed properties. Their experience will identify many aspects of incomplete projects that are often missed. Hill International has over 25 years of cost estimating experience on all types of construction.

Collection of project information will provide the data needed to make decisions about what to do with the asset. This can be the most critical and challenging part of the task. If the facility is no longer in demand in that area, perhaps it can be renovated at a reasonable cost into a different type of facility that could be more easily sold. Whatever the project, we believe that it is critical to develop an action plan now so that we are prepared to maximize the potential value of these assets as they become available.  Thanks to Hill International for this article, very informative..JLD