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Crisis Asset Management Margaret Stagmeier TI Asset Management, Inc.

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Crisis Asset Management. Margaret Stagmeier TI Asset Management, Inc. “When you find yourself in the middle of Hell…keep going”. Winston Churchill. What’s going on in the commercial real estate market?. Capital markets frozen affecting debt availability for new deals and refinancing. - PowerPoint PPT Presentation

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Page 1: Crisis Asset Management

Crisis Asset Management

Margaret StagmeierTI Asset Management, Inc.

Page 2: Crisis Asset Management

“When you find yourself in the middle of Hell…keep going”.

Winston Churchill

Page 3: Crisis Asset Management

What’s going on in the commercial real estate

market?• Capital markets frozen affecting debt

availability for new deals and refinancing.• Economy contracting, affecting tenant income.• Massive evaporation of wealth, eroding

consumer confidence.• Capital assets including real estate are

vulnerable.

Page 4: Crisis Asset Management

GOOD NEWS• Interest rates are low.• Operational expenses are flat or falling.• Market is giving permission to reinvent and

restructure deals, partnership and business relationships….for survival.

• Salaries and wages are flat or falling - new employee loyalty.

Page 5: Crisis Asset Management

What is Asset Management?

Real Estate Ownership = Risk Management

Real Estate Asset Management = Real Estate Ownership

Real Estate Asset Management = Risk Management

Page 6: Crisis Asset Management

What are the challenges of the Asset Manager in the

current economic meltdown?

Page 7: Crisis Asset Management

First lets delineate that question with a discussion of the nine basic responsibilities

of the Asset Manager

Page 8: Crisis Asset Management

Nine basic Asset Manager Responsibilities

• Supervise Property Management• Supervise Marketing and Leasing• Cash Flow Management• Refinancing/Sales/Purchase Activity• Reporting • Engagement of Third-Parties

(Attorneys, Appraisers, Engineers, Surveyors)• Capital/ Structural Management • Compliance/Contract Adherence• Taxation Issues

Page 9: Crisis Asset Management

Supervise Property Management

• Tenants challenging leases to get reductions which is time consuming

• Limited $$$ to fund expenses and comply with tenant leases

• Collection issues – working with attorneys• Loan compliance is heightened• Security issues

Page 10: Crisis Asset Management

Supervise Marketing & Leasing

• Fewer credit-worthy tenants make market more competitive for leasing

• Lower rents and higher build-out costs• Brokers/ realtors demanding higher fees• Rents are in a deflationary environment

Page 11: Crisis Asset Management

Cash Flow Management

• Tenant defaults reducing cash flow• Risky banks challenging stability of deposits• Lenders demanding heightened reserves• Shortage of investors willing to fund cash deficits• Government demanding more taxes to fund

shortfalls

Page 12: Crisis Asset Management

Buy/Sell/Refinance Decisions

• Shortage of lenders for refinancing • Shortage of buyers due to loan scarcity• Shortage of investors willing to fund capital

requirements

Page 13: Crisis Asset Management

Reporting• Reduced confidence by investors and

lenders is increasing reporting requirements• Investors requesting audits and reviews• Necessity of Sources/ Uses of Cash even

more critical to manage cash flow• Investors wanting short-long term budgets

and plans

Page 14: Crisis Asset Management

Engagement of Third-Parties(Attorneys, Appraisers, Engineers,

Surveyors)• Attorneys engaged for crisis management

issues (tenant defaults, lender negotiations, bankruptcy)

• Appraisals, engineers used to give credibility to discussions with investors and lenders

• Indoor Air Quality engineers to protect against tenant complaints

Page 15: Crisis Asset Management

Capital/Structural Management

• Need capital work for your property… prices are low

• Lack of cash to fund capital improvements• Compliance with tenant leases more important

than ever

Page 16: Crisis Asset Management

Compliance is very critical to manage relationships with:

• Lenders• Partners• Investors

• Government Agencies• Tenants

• Insurance

Page 17: Crisis Asset Management

Taxation Issues

• Recent IRS rulings on forgiveness of debt• Tax Planning in an environment of future tax rate

increases• Deferred income recognized for partnerships• Matching losses with gains and strategic planning

for sales/foreclosures

Page 18: Crisis Asset Management

With all this bad news, how does an asset

manager position their property?

Get into the psychology of successful crisis management by

understanding these three items and the psychology of your circle of influence:

Page 19: Crisis Asset Management

First…

The turmoil in the current business environment WILL change your business model. Don’t take this personally.

It’s business. Focus your mental energy on using this change to strengthen

your position.Focusing on your weakness will become a self-fulfilling

prophesy.

Page 20: Crisis Asset Management

Second…

Understand that crisis management is a smart opportunity to build goodwill within your circle of influence. Follow “bad news asset management”

protocol to build credibility.

Page 21: Crisis Asset Management

Third…

Understand that this crisis is giving you the opportunity to reinvent your relationships with clients, tenants, lenders and partners.

Survive on your terms with a stronger business platform.

Page 22: Crisis Asset Management

Smart crisis asset management is an

understanding of the psychology of your circle of

influence…

Page 23: Crisis Asset Management

Know that your client/ investor is very very nervous about their investment. Your lender needs

some love..too.

• Heightened reporting and client meetings/visits with a strong asset management plan

Page 24: Crisis Asset Management

Know that your client/ investor is very very nervous about their

investmentWhat do you tell them? The truth as defined in the key areas of risk: Best Case / Worst Case

* Tenant relations (income streams, tenant surveys)* Marketing (where building stacks competitively in the current market rents, etc.)* Cash flow management (is the property operating at a deficit? surplus? reserves?)* Major capital events on the horizon (new equipment, etc.)* Status of loan and compliance* Use of third-party reports strategically* Clear understanding of partnership or ownership agreement and your clients rights

Page 25: Crisis Asset Management

Know that your client/ investor is very very nervous about their

investment

• As part of the communication, explore all options of the ownership going forward (Buyout, sell, refinance, do nothing, etc.)

Page 26: Crisis Asset Management

Know that your client/ investor is very very nervous about their

investment

• Make sure that the tax consequences of all decisions are part of the discussion

Page 27: Crisis Asset Management

The way your lender perceives you and your asset has changed

dramatically in the past 180 days

If you are in a loan workout, understand that your lender is predominately interested in keeping their job

Page 28: Crisis Asset Management

The way your lender perceives you and your asset has changed

dramatically in the past 180 days

• Treat a lender as you would an investor/ client.• Present a strong asset management plan and show

them how you are going to get them repaid.• Make yourself the strongest option that they have

to resolve the loan.• Do research on the bank/lending institution to get

their inside agenda.

Page 29: Crisis Asset Management

The way your lender perceives you and your asset has changed

dramatically in the past 180 days

See the loan through your lenders perception:• Appraised value• Stability• Value in a sale

Page 30: Crisis Asset Management

The way your lender perceives you and your asset has changed

dramatically in the past 180 days

• Look for leverage with your lender:( i.e. bank deposits, listing for sale, etc.)

• Communicate often with your lender…(If in another state, go visit them for a meeting)

• For loan refis, start as early as possible (12 mos)

Page 31: Crisis Asset Management

The way your tenant perceives you and your asset has changed dramatically in

the past 180 days.

Page 32: Crisis Asset Management

The way your tenant perceives you and your asset has changed

dramatically in the past 180 days.

• Show me the money and I’ll show you the keys.• Sublease space.• Landlords are getting hit up by tenant reductions in rent or

space.• Tenants want to remove personal guarantees.• Tenant’s are looking for ways to get out of their lease and

challenging HVAC and other “vague” components.• Focus on lease compliance!!!! • Set meetings with your key tenants.• Do tenant surveys.

Page 33: Crisis Asset Management

The way that cash is perceived has changed dramatically in the last 180

days:• Make sure sufficient cash flow reserves are

available to leverage with tenants, lenders and vendors.

• Get your investors to buy into heightened cash reserves

• Make sure that all bank deposits are with credible banks or covered by the Transitionary Deposit Program

Page 34: Crisis Asset Management

Know that your employees and vendors are very nervous about

their jobs• Quarterly meetings/ inspections to discuss

status of deals with your employees• Be honest about the situation• Share with your employees the asset

management plan. They can be your best ally.

Page 35: Crisis Asset Management

Know that you need to understand the taxation

consequences associated with decisions.

• Forgiveness of debt• Foreclosure• Partnership restructuring• Losses (carry back and carry forwards)

Page 36: Crisis Asset Management

Keep a clear perspective on YOUR GOALS!

• Your talents have not gone away in this market!

• Always opportunity in a down market.• Focus on your position of strength.

Page 37: Crisis Asset Management

Crisis Asset Management Summary:

1. Be clear on the nine responsibilities of the Asset Manager’s role

2. Get into the psychology of crisis Asset Management and the psychology of your circle of influence

3. The turmoil in the business environment will alter your business model. Accept this reality to strengthen your position

4. Your circle of influence is nervous and the perception of you has changes in the last 180 days.

5. Focus focus focus on your strengths6. Keep going!