Managing Debt Is Key to Surviving 2012

Debt management is the top strategy for surviving the highly volatile market, according to the latest 2012 forecast from the University of Southern California Lusk Center for Real Estate.

“There’s a massive amount of debt still outstanding — from mortgage debt to institutional debt to state debt and the federal deficit. We need to refocus on debt management and the balance sheets,” said Stan Ross, chairman of the board at Lusk.

“From a strategic planning standpoint, there are a number of things all real estate companies should do before they have a problem,” Ross said. Drawing on expertise in mergers, acquisitions, reorganizations, and creative financial structures, Ross provided the following tips for withstanding the market’s fluctuations:

1. Complete an Internal Evaluation. “Redevelop and update your database, match it up with current macro and micro trends, run sensitivity analyses, take inventory, and rank your assets. You should do a new realistic pro forma, but don’t fall too in love with results,” Ross noted.
2. Increase Communication With Lenders. Transparency is paramount in the current climate: “Schedule more frequent meetings with your lenders to avoid any shocks or surprises,” Ross said. Providing lenders with a clear financial history as well as the current state of finances allows for collaboration and development of “options with respect to modifications and restructuring.”
3. Develop Lender Strategies That Maintain Cash Flow. “Individual lender strategies range from making partial payments to requests for a simple waiver of a default provision, a moratorium on interest to handing over deeds in lieu of foreclosure. Work with lenders to identify solutions that meet their needs and support liquidity and long-term cash flow,” Ross said.
4. Review the Balance Sheet Before Making Modifications. Examining all assets and liabilities is the first step. “Then prepare a presentation, including a cash flow, realistic current values, and a sensitivity analysis,” Ross concluded.