2 min
BIGGEST RISK with DJ McClure Commercial Real Estate Pro Network
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- Investing
J Darrin Gross:
I'd like to ask you, DJ McClure. What is the BIGGEST RISK?
DJ McClure:
I think right now, one of the BIGGEST RISK that I see among many is the number of properties that are, you know, approaching a debt restructure, you know, there's a lot of short term bridge that for a lot of properties that's coming due. And so one or two things are going to happen, obviously, they're going to be able to, if they're able to put together the funds to structure a refinance, you know, it's likely going to be into a different loan structure or excuse me a loan program, predominantly, your Fannie and Freddie type programs being, you know, the more fixed set options in a lot of cases. And this has a dramatic increase on the flood insurance coverage requirements. And so you could take a property that's only paying maybe a few 1000, a building, and the new requirements, you know, could add and more than double or triple the cost of what they're having to pay per building.
And this isn't always something that somebody knows is coming. So if you're looking at a debt restructure and you're in a flood zone, you know, sooner than later, you want to have our team or someone look at that. Because not only could you increase the value of the property going into the refinance, which could reduce, you know, the cash in potential that may be required by being able to show that lender a higher valuation with a better noi.
But you're also avoiding that flood insurance coverage increase that would come with that. And then the other option of that being the same as if a seller or excuse me, an owner is forced to sell because the refinance is not possible. Nonetheless, that flood insurance cost is counting against that sale valuation. If you're having to sell in that scenario, you're probably already selling at a lower valuation than your business plan has at that point. So again, if the flood insurance costs can be reduced, again, that helps on that sale valuation to try and recoup as much of those investor dollars as possible.
J Darrin Gross:
I'd like to ask you, DJ McClure. What is the BIGGEST RISK?
DJ McClure:
I think right now, one of the BIGGEST RISK that I see among many is the number of properties that are, you know, approaching a debt restructure, you know, there's a lot of short term bridge that for a lot of properties that's coming due. And so one or two things are going to happen, obviously, they're going to be able to, if they're able to put together the funds to structure a refinance, you know, it's likely going to be into a different loan structure or excuse me a loan program, predominantly, your Fannie and Freddie type programs being, you know, the more fixed set options in a lot of cases. And this has a dramatic increase on the flood insurance coverage requirements. And so you could take a property that's only paying maybe a few 1000, a building, and the new requirements, you know, could add and more than double or triple the cost of what they're having to pay per building.
And this isn't always something that somebody knows is coming. So if you're looking at a debt restructure and you're in a flood zone, you know, sooner than later, you want to have our team or someone look at that. Because not only could you increase the value of the property going into the refinance, which could reduce, you know, the cash in potential that may be required by being able to show that lender a higher valuation with a better noi.
But you're also avoiding that flood insurance coverage increase that would come with that. And then the other option of that being the same as if a seller or excuse me, an owner is forced to sell because the refinance is not possible. Nonetheless, that flood insurance cost is counting against that sale valuation. If you're having to sell in that scenario, you're probably already selling at a lower valuation than your business plan has at that point. So again, if the flood insurance costs can be reduced, again, that helps on that sale valuation to try and recoup as much of those investor dollars as possible.
2 min