Monetizing Stalled Construction Deals
Published on March 4, 2024
Practical Solutions for Lenders & Investors
Changing market dynamics, incompetent management, insufficient liquidity, fraud, cost increases, and inflation are just some of the forces behind today’s large inventory of stalled real estate developments.
Construction lenders and real estate investors with capital tied up in these projects have common goals – preserve the project’s existing status or complete construction, resolve any litigation, and monetize the asset through a sale or refinancing. However, it’s difficult to assess the various paths to recovery, choose one, and then achieve a successful implementation.
Key Actions to Monetize Stalled Construction Projects
Whether utilizing a receivership, out-of-court restructuring, ABC or bankruptcy, key actions to achieving an optimal monetization include:
1. Determine the feasibility of completing construction vs. selling the project as-is:
- Secure and protect the property and associated business operations
- Get control of the finances and bank accounts
2. Identify, procure and manage financing requirements:
- Incremental construction financing
- Construction takeout mortgage financing
- Negotiate and clear mechanics’ liens, as needed
3. Review, amend and manage the design/construction team:
- Reestablish contracts with architect-of-record and designers
- Establish all critical civil construction needs creating code or other physical issues
- Establish all critical civic process needs risking lapse of permits or entitlement
- Hire a third-party general contractor or construction manager
4. Complete the construction project:
- Resolve entitlement issues, permitting and easement requirements, construction setbacks, environmental approvals, and land permitting violations
- Oversee general contractor
- Obtain final certificates of occupancy
5. Design and implement the sale or leasing process:
- Design and prepare sales/leasing platform
- Negotiate with any pre-existing buyers of residential properties
- Complete loan and sale closing paperwork with escrow
- Retain and manage title company
6. Manage finance and accounting:
- Prepare budgets, manage cash flow and track performance
- Pay vendors
- Process lien-related paperwork
- Coordinate sale and escrow financials
Current Engagements
State Court Receivership, Texas: 30+ Residential and Commercial Developments
A distressed real estate development company in Austin, TX with approximately 30 development projects in Texas, Washington and Colorado suddenly collapsed due to litigation and bank foreclosures. Assets include infill single- and multi-family properties under construction. Stapleton was appointed Receiver by the Texas State Court.
- As Receiver, our initial priority was stabilizing and preserving the properties and managing liens.
- The projects’ physical and financial conditions are very diverse.
- The complex infill construction projects require highly detailed solutions.
- As Receiver, we are completing construction of some assets while preserving and selling others.
SEC Receivership, Northern California: 12 Residential and Mixed-Use Commercial Developments
An insolvent, full-service real estate development operation in the San Francisco Bay Area with $300MM in liabilities and 12 ground-up developments for apartments, condominiums, and mixed-use projects in various stages of the entitlement, land-acquisition and development process came under the SEC’s scrutiny for securities fraud. Stapleton was appointed Receiver.
- As Receiver, we marshaled assets, performed a reconstruction of the capital stack of each project to determine net negative or positive equity, and completed underwriting for pending projects to determine the best exit strategy for each.
- Completing construction of 93-unit and 96-unit condominium towers and marketing the units for sale.
- Listed several projects for sale.
State Court Receivership, California: Partially-Constructed Hotel Conversion
A developer converting a historic downtown concrete garage into a hotel had severe cost overruns, leading to financial distress. Stapleton was appointed Receiver.
- As Receiver, we determined the property needed structural work and construction.
- The lender funded additional structural work, then foreclosed on the asset.
- The complex project was mired in mechanics’ liens and is on a land lease.
- Post foreclosure, the lender has offered the property for sale.
- Stapleton was discharged as Receiver, then retained by the lender to oversee the property and sale process.
State Court Receivership, California: Partially-Constructed Apartment Building
A developer building a 120-unit infill apartment building in Los Angeles encountered cost overruns and significant delays, creating financial distress. The project was stalled for several months prior to Stapleton’s appointment as Receiver.
- As Receiver, our priority initially was preserving the property and construction permit and managing lien holders as needed.
- We immediately secured the property and removed scaffolding to keep out homeless squatters.
- As Receiver, we were required to implement a replacement GC to preserve all construction permits.
- The lender foreclosed and is seeking to sell the asset as is.
For more information about our Stalled Construction and other Real Estate Solutions, contact:
David Kieffer
dkieffer@stapletoninc.com
213-235-0602