Business Improvement Group

Commercial Real Estate Developer

Challenge

A commercial real estate developer was in the midst of converting a retail store building into residential apartments and condominiums and ran into numerous project problems and delays, causing them to run out of cash before being able to complete the conversion. In addition, the project was in default of loan payments and the long term viability of the project was in question.

BIG Actions

BIG was hired as a consultant by the bank to determine the viability of this real estate project, initially performing a “cash in vs. cash out” analysis to determine if the project would be self-sustainable in the long-term. By using rates in the surrounding areas and determining the total potential monthly rent revenue, BIG determined that, due to the default of loan payments, the rent would have to be higher than the neighboring areas in order to cover both operating costs and pay debtors.

In an effort to identify all sources of incoming cash, BIG performed an in-depth review of the developer’s bank statements, current and future rent payment expectations, and even delinquent collections payments. Forecasting models also assisted in determining the true occupancy of the building, including signed leases, future leases, and anticipated leasing terminations.

The Bottom Line

BIG was able to provide their client, the bank, with analysis that showed the investment was no longer financially sound. This information assisted them in making an informed business decision.