A Little Too Aggressive

I was discussing a deal with a lender where the borrower needed an equity infusion to right-size the existing loan, now at maturity.

The deal was hurting. The product was a late 80s vintage with a plan to renovate unit interiors. I would call it the vanilla value add program that I have seen play out quite a bit over the last decade.

The market was not the issue. Other properties had achieved comparable lifts over the timeframe.

The main hiccup in this deal was in pushing rents on renewals of existing tenants without renovation. The push was too excessive and quick, and the existing tenants got upset and created a stir that infected the property. Late pays and no pays cropped up, leading to the property dropping, at one point, to an upper 70s occupancy along with delinquency issues.

The most interesting thing about this situation was that most of the deal stress could have been avoided with better planning and tact around how to manage the tenant base transition.