Commercial Investment Real Estate

MAR-APR 2015

Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.

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17 March | April | 2015 CCIM.com By structuring new leases based on go-for- ward tenancy in the building, a valuable asset for the estate is created, which enables the debtor or the acquirer to of er a fully leased building to the investment marketplace. Based in suburban Chicago, Qualteq was a market leader in manufacturing plastic credit and gif cards for companies such as American Express, Visa, and MasterCard. T e owner's personal f nancial dif culties forced Qualteq into Chapter 11 in 2013. T e bankruptcy trustee and his f nancial advisers f rst stabilized the company, then sold the business to Brazil-based Valid S.A. through a Bankruptcy Code Section 363 bankruptcy sale. However, Valid had no interest in purchasing the four buildings Qualteq occupied. Working in tandem with the bankruptcy trustee and advisers, Hilco structured new, f ve-year leases on each of the four buildings with Valid as the tenant, based on the strong balance sheet that was created with Valid's purchase, enabling Qualteq to continue operations in their current facilities. Prior to the f nalization of the new leases and with no certain commitment from Valid to remain as a tenant, there was no immedi- ate interest from the real estate investment community for four potentially vacant industrial buildings. Once the new leases were f nalized, the leased buildings were then put through a sale process by Hilco, which garnered significant interest from third- party investors. Stalking horse bidders were obtained for each property, followed by an auction. Hilco estimated the four buildings, on an empty basis, were valued at approxi- mately $10.5 to $12.5 million. When the gavel came down, the auction resulted in total sales of almost $19 million for the four fully occu- pied buildings. Utilizing the real estate as a vehicle to enhance value further ensured that the estate achieved maximum value of the Qualteq business/assets and helped to secure a suc- cessful transaction with Valid. Furthermore, the added value created by selling buildings occupied by a quality credit tenant resulted in suf cient proceeds to fully pay all mort- gage holders. Whether a company in Chapter 11 reor- ganizes and exits from bankruptcy on its own or is acquired by a strategic or f nancial buyer, the real estate occupied by the business can be transformed into a value enhancer. By recasting leases with a strong tenant and aggressively marketing the properties, a sig- nif cant amount of incremental cash can be generated to benef t the bankruptcy estate in a reorganization and/or a going-concern sale. In bankruptcy, debtors and creditors should regard companies' real estate as a value-creation tool, not an illiquid liability. Joel H. Schneider is senior vice president, dispositions, for Hilco Real Estate, LLC, a unit of Hilco Global. Contact him at jschneider@ hilcoglobal.com. The CCIM Institute's new preference-matching property marketing platform helps you do more business. Log on at CCIM.com/dealshare . (Formerly MailBridge) March Update DealShare is now even easier to use, with text-only lists, price filters , and more. Check it out!

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