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The Legacy Assets Dilemma - Do You Chase Good Money After Bad?

3/30/2012

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Your equity is gone.  This is the first thing you hear and also the last thing that you want to hear.  The reality is that the value of all asset types of properties has fallen dramatically in the last few years.  Compounding the valuation problem is a profound change in the financing markets.  Even if your NOI is solid and occupancy is rebounding high leverage financing solutions (which approached 95% of value) are no longer available.  What is available now are conservative senior debt facilities in the 65% to 70% LTC/LTV range, or up to 70% to 85% LTV/LTC range facilities, but they are significantly more expensive.  This lack of debt, therefore, requires a much larger equity investment, lower returns available to the equity, and ultimately drives the value of the asset lower.

What this means: You are facing a tough decision.  Unless your property is a super-star trophy, you are facing either a capital call for you and your investors or loss of your asset.


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