Turnaround Pros Should Avoid Creating a 'Fire Sale' Atmosphere in Fast-Track Restructurings, Advise Executives from A&G Real Estate Partners

When selling real estate assets as part of retail bankruptcies, the disposition team must balance speed with sensitivity to buyer perception, write A&G's Emilio Amendola and Jim Terrell.

News provided by

A&G Real Estate Partners

Oct 08, 2019, 08:37 ET

MELVILLE, N.Y., Oct. 8, 2019 /PRNewswire/ -- Lenders and creditors often want retailer bankruptcy restructurings to wrap up quickly. But in a new article for the Turnaround Management Association's Journal of Corporate Renewal, two executives from A&G Real Estate Partners (AGREP) warn of a particular danger associated with pedal-to-the-metal approaches.

"In situations involving real estate, it is important to balance the need for speed with the potential risk of signaling to buyers that the disposition is, in effect, a fire sale," write AGREP's Emilio Amendola, Co-President, and Jim Terrell, Senior Managing Director.

That risk is running high today given the rash of retail bankruptcies in the marketplace, Amendola and Terrell explain in the October issue of JCR. As they note in the article ("Avoiding Perceptions of a Real Estate Fire Sale During a Fast-Track Process"), real estate asset value depends on marketplace perception.

"If an auction turns up zero bidders because it was too hastily arranged with too little preparation," they write, "the perceived value of the properties on offer surely will plummet, and the prospects of any future sale event will darken in direct proportion as well." In a fast-track process, they explain, the goal should be to move quickly without sending the wrong message to buyers.

The article offers four ways in which real estate teams can respect deadlines while maximizing value during the restructuring process. The need to adapt to situational dynamics, for example, requires flexibility on the part of the team, advise Amendola and Terrell. "In some retail real estate dispositions, boxes located in major markets can attract 10 or 15 bidders each," they note. "The strength of market demand in these cases makes a speedy process with large-scale auctions perfectly justifiable."

But rushing the sale of highly specialized, nonretail assets—a medical office building loaded with high-tech equipment, for example, or a fulfillment center specially designed to facilitate rapid delivery of online orders—can be a huge mistake, they write. To back up that point, they cite the bankruptcy process for ITT Educational Services, in which the team pounded the pavement to find global bidders for individual assets.

"Early in the ITT process, various third-party firms told the trustee that auctioning the assets in a one-and-done auction could fetch up to $50 million," they relate. "When all was said and done, the total recovery for ITT exceeded $90 million—nearly double those estimates. Patience was the key."

In the article, Amendola and Terrell also emphasize the importance of lenders, trustees and disposition firms engaging in clear, frank and frequent communication about their priorities and perspectives. "Trust is important," they assert. "If the seller and disposition firm detect a risk that asset value could be undermined via excessive speed, they need to feel comfortable communicating this to the lender; for its part, the bank needs to be willing to tap the brakes and trust that an extra step or two will benefit the process in the end."

Amendola and Terrell cite examples of how teams can collaborate with municipalities to avoid unnecessary and time-consuming snags. "The town council, for example, might be adamant that a lagging shopping center continues to function as retail; the likeliest buyer, however, might aim to turn it into an industrial fulfillment center," they write. "Clearly, the process could be slowed substantially if the team wastes time courting this buyer without first understanding what the municipality will actually allow for the site."

Finally, they detail how marketing can help maximize real estate value in a fast-track restructuring process. "By clearly communicating and backing up with hard data the upside and ongoing viability of assets on offer, the team stands a good chance of moving the process forward more quickly," advise Amendola and Terrell.

Along the same lines, the marketing efforts should be carefully crafted to avoid the tenor and tone of a fire sale. "Be cautious about language that conveys, either subtly or overtly, a level of desperation to get rid of the asset," they write. "Focusing on the upside of the property can help bring multiple bidders to the table—and encourage them to battle with each other for the right to acquire that asset."

The full article is available at http://www.tmajcr.org/journalofcorporaterenewal/oct_2019/MobilePagedReplica.action?pm=2&folio=18#pg20

About A&G Real Estate Partners
A&G is a team of seasoned commercial real estate professionals and subject matter experts that delivers clients the highest possible value for their real estate. Key areas of expertise include real estate dispositions, lease restructurings, valuations, acquisitions, and facilitation of growth opportunities. Utilizing its marketing knowledge, reputation and advanced technology, A&G has advised the nation's most prominent retailers and corporations in both healthy and distressed situations. Founded in 2012, A&G is headquartered in Melville, N.Y., with offices throughout the country. For more information, please visit: http://www.agrealtypartners.com.

Press Contact: At Jaffe Communications, Bill Parness, [email protected], 908-789-0700, ext. 110, or Elisa Krantz, [email protected]

NOTE TO MEDIA: Emilio Amendola, Jim Terrell and other members of the A&G team are available as resources for your coverage of real estate issues in restructurings in retailing and other industry sectors..

SOURCE A&G Real Estate Partners