As the 2008 recession continues to take a toll on the US economy, numerous commercial and residential real estate development projects are stuck in a holding pattern. Investors are unwilling to invest, and lenders are unwilling and/or unable to lend. Business owners find it extremely difficult to obtain financing that would allow them to develop businesses that would lease commercial units from developers, and residential buyers cannot obtain financing to purchase single-family homes or condos from developers. The general devaluation of properties, lack of equity, limited availability of credit, and the overall decline of economic conditions created a chain of events that has made it increasingly difficult for real estate development projects to succeed, or even survive within the current market. However, a number of strategies exist to help “un-stick” real estate development projects by overcoming these barriers and challenges.
The lending industry has played an important role in this chain of events as hundreds of lenders have retracted real estate development loans, refused to issue new loans, and tightened financing criteria despite the millions of dollars in “bailout” money that many of them received (intended, in part, for the purpose of opening new credit channels and lending opportunities). As a result, numerous real estate developers have been left with pending development and construction loans that their lenders are no longer willing to fund. Many developers have opted to negotiate deed in lieu agreements with their lenders to avoid litigation and foreclosure by essentially transferring the properties to the lender with no monetary gain for the developer mortgages. Other real estate developers are simply stuck in this holding pattern with properties that they cannot get funded but are responsible for concerning payment of property taxes, maintenance expenses, and debt service payments to lenders. For many of these developers, the prospect of developing their properties to generate a profit in the near future has become negligible. The expenses associated with keeping and maintaining these properties coupled with the lack of revenues generated by them has created a downward spiral effect that has led to bankruptcy and foreclosure of thousands of real estate developers in recent years.
Properties that were once slated for development of residential communities or new commercial venues that would help create jobs and improve economic conditions have been stuck for several years. Lenders typically sell these properties through auctions or a “fire sale” processes for pennies-on-the-dollar in order to get them “off of their books” as a liability and as an impediment of their funding capacities. Opportunistic investors or “land bankers” often purchase these properties and hold them for future gains in anticipation of an eventual market turn-around. Hence, these properties remain undeveloped and “stuck” for years to come, instead of becoming revenue generating assets for their communities.
So how do you “un-stick” a real estate development project in today’s economy? Many real estate development projects can benefit from various strategies that can be implemented to convert them into revenue-generating profit centers that also create jobs, facilitate the provision of needed goods and services, help improve the local economy, and enhance the aesthetic appeal of the area by improving a vacant or deteriorated property. The strategies provided in this article are described as summaries of more complex processes that require strategic planning and development tactics in order to achieve significant results; However, these strategies have been effective for the turn-around of numerous real estate development projects within the current economy. While it may not be an easy task to “un-stick” a real estate development project in today’s market due to the challenges described above, it is achievable to convert such properties into profitable endeavors by incorporating the appropriate strategies and techniques that are designed to overcome these barriers despite the current economic conditions. Following is a list of various strategies that can be incorporated for this purpose.