Distressed real estate projects often involve debt disputes, seizures, and lawsuits, and with the increase in debt defaults of real estate enterprises, the number of distressed real estate projects has been on the rise recently, and the investment opportunities for non-performing assets have also increased. This article analyzes the causes and solutions of distressed real estate projects.
*: JIC Construction Investment Holdings Author: Song Qing.
The reasons for the formation of distressed real estate projectsThere are six types of reasons for the formation of distressed real estate projects. By analyzing the causes of the formation of distressed real estate projects and finding the root cause of solving the problem, we can prescribe the right medicine to achieve the purpose of solving the problem. 1.Violations, overbuilt badThis type of real estate can be subdivided into two situationsaIt is that the development procedures are incomplete, and the normal approval is not fulfilled and the private sales and money are started. Some developers have just obtained the land, or just after the excavation of the foundation pit, they start to subscribe internally, and then divert the sales money for other purposes, resulting in the later completion of the project. AnotherIt is that the construction was not approved in accordance with the plan during the construction process, and the area or building height was broken. This kind of real estate will face problems such as failure to obtain regulations or planning and acceptance, resulting in the inability to successfully apply for sales permits, resulting in the developer being unable to realize the sales payment, and then unable to pay the project price and bank loans, and fall into difficulties. Most of these projects occur in areas where supervision is not in place and the real estate market is chaotic. 2.Poor policies and urban planningThis kind of distressed real estate is caused by policy adjustments and changes in urban planning, such as "housing for living, not speculation", "purchase restriction order", the "two red lines" issued by the central bank, the cancellation of local preferential policies for investment promotion, the adjustment of urban area control regulations, and the planning adjustment of local **. For example, the original remote suburbs, with the development of the city into the first planned new area, development zone and other strategic development areas, resulting in the original industrial land into commercial land;In addition, the preferential policy of land transfer money has been cancelled, and the planning conditions promised by the leaders cannot be fulfilled, which has disrupted the investment plan of investors, resulting in an increase in the demand for funds, and investors are unwilling to make additional investment, or have no money to do soThen there is the bank loan withdrawal, ** purchase restriction and other suppression of the real estate market, resulting in a number of unfinished or unable to handle property rights projects. Such projects mainly occur in areas with poor business environment, unstable political environment and relatively backward areas, and most of them are projects of large urban complexes, industrial parks and urban villages. 3.Poor performance caused by financial problemsThis kind of non-performing project is caused by the large demand for project funds, the high debt ratio of real estate enterprises, and the broken capital chain. In the past 20 years, with the support of national policies, the real estate market has been extremely hot, and real estate companies have been in a state of rapid expansion and high debt ratio, and their funds are mainly dependent on bank loans. China's real estate enterprises are supported by bank loans under the high debt ratio of the business model, this model is suitable for the era of soaring housing prices, the appreciation rate of real estate is far greater than the cost of financing, and consumers mostly to "buy up not buy down" psychology contributed to the hot real estate market. However, once the market is cold, loans are tightened, and funds cannot be withdrawn, cash flow problems will occur, financing will be subject to default, overdue risks, and even the enterprise will face bankruptcy, and all creditors will flock to it, resulting in unfinished results such as the project being seized, suspended, and unable to be sold. Most of these non-performing projects are real estate projects invested by private enterprises, and the investors' debt ratio is too high, the funds are insufficient, and the speculative psychology is strong, which is the so-called "borrowing chickens to lay eggs". 4.Defects caused by inaccurate product positioningThis kind of non-performing project involves product positioning problems, incomplete investigation of the surrounding market, inaccurate grasp of market demand, and product design does not meet consumer needs. At the same time, the developer's ability is poor, the decentralization is slow, or even there is no market, which leads to the project in trouble. Most of these non-performing projects are caused by small real estate companies, or cross-border bosses who have just stepped into the real estate industry, and are full of illusions about the real estate market. Some investors have no experience in the real estate field, product planning, market positioning only based on "I like", take it for granted, the product can not meet the needs of buyers, sales do not move, and eventually lead to the failure of the project and into trouble. 5.Defects caused by oversupply and slow de-escalationThis type of undesirable project is purely a relative surplus of development projectsIn recent years, coupled with the country's purchase restriction policy of "housing for living, not speculation", the de-escalation cycle has been too long. Like some third, fourth and fifth-tier cities, in the first period of real estate, the psychology of buyers is "to buy is to earn", borrowing money to speculate in real estate, so real estate projects are sold out at the opening, abounding, and even have to queue up to buy a number to be eligible to buy a house. During that hot period, there was a frenzy of land sales, and developers actively hoarded land, which led to a surge in development projects, and locals had several houses in their hands per family. In these cities with fewer job opportunities, there is a shortage of migrant population, and it is difficult to rely on locals to support such a large stock market, resulting in sales blockage, inability to return funds, and poor capital chain of developers. 6.Defects caused by the superposition of different reasonsThis type of undesirable project is caused by the combination of the above reasonsFor example, a plot in Beijing, where one of the properties was originally designed to be 300 meters high, due to the delay in the construction period, catching up with the policy adjustment, only 200 meters were allowed to be built.
Ideas for revitalizing distressed real estate projectsIf you want to revitalize the distressed real estate, you should formulate solutions to the problems existing in the project, generally through financing, debt restructuring, seeking support, upgrading and transformation, project transfer, etc., to achieve the value of the projectThis article sorts out the solution ideas from the perspective of debt acquisition. The first category of illegal and overbuilt distressed real estate:It is necessary to conduct in-depth research on relevant local policies and regulations, visit relevant functional departments, and seek ways to solve problems. Often there are several different ways to solve a problem, and it is necessary to compare which method is most conducive to maximizing the benefits of the project. For example, it is through the investment of funds to pay fines, and through legal and compliant procedures to obtain legal approvals and proceduresOr hire a third-party intermediary agency that is particularly familiar with the laws and regulations in urban planning, real estate and other related fields, and has rich resources in the local competent authorities?This requires the measurement and judgment of what kind of solution to take from the aspects of revitalization cycle, financial pressure, capital cost, and self-owned resources. The second category involves non-performing projects related to planning and policy changes: such projects are more complex, often contrary to the ** plan, and are not supported by documents. Such projectsIt is necessary to fully communicate with the local **to understand whether there is a willingness to solve these bad real estate problems, and whether you can get the support of the local peopleOr simply pull in the local ** and cooperate with the ** to revitalize such distressed real estate projects。Generally, the local bad or unfinished projects also affect the image of the people, or are related to the people's livelihood problems, the local people have a strong willingness to solve these problems, a positive attitude, you can take this opportunity to talk with the first conditions, to the policy, not only to solve the image of the first, but also to improve the appearance of the city, but also to reduce the problem of petitioning by the people. The third type is the problem of funds, the project investment is large, the self-owned funds are insufficient to borrow, and then the debt default, debt disputes caused by the distressed real estate project: this kind of real estate may not have problems with the project itself, that is, due to various disputes or contradictions of creditors, the project capital chain is broken and the project is suspended or seized. This type of real estate involves a large number of creditors and complex relationships, creditors may be small owners, construction parties, material suppliers, banks, company shareholders and other creditors, investors need to balance the relationship between various creditors, and creditors can reach a consensus in order to move forward with the project. The revitalization methods mainly include debt restructuring, acquisition of creditor's rights, acquisition of equity, bidding for collateral, etc。For example, a powerful state-owned enterprise and central enterprise are introduced as the funder and as the reorganization, and other creditors are coordinated to release the seizure of the project, so that the project can be promoted and sold normally, and after the funds are withdrawn, the creditors will be compensated proportionallyYou can also obtain control of the project through debt discount acquisition, give creditors the opportunity to revitalize the project through debt extension, or obtain project ownership through debt-to-equity swap or litigation procedures, and then find a construction agent or professional team to revitalize the project. The fourth category relates to product positioningIn order to revitalize this kind of real estate, it is necessary to introduce a real estate development team with strong professional ability, preferably a well-known development enterprise with brand influence, to name the project and improve the brand effect of the project。A professional development team conducts a comprehensive survey of the market where the project is located to find out who the local potential home buyers include and what their needs are. The consumer is God, and developers must understand God's needs. Carry out product positioning according to market demand, upgrade and transform in combination with the current situation of the project, or even tear down and rebuild to meet market demand. In this way, we can ensure that the product positioning is correct, achieve the expected goal of decentralization, and ensure the return of funds, so as to revitalize the entire real estate. The fifth category is purely caused by the relative surplus of development projects and the oversupply of the market. This kind of distressed real estate project is completely due to market reasons, and the de-industrialization cycle of the entire regional market is very long, and the return of funds is slow, so it is normal for the project to be in trouble. But it is impossible to change the relationship between supply and demand in the market, so there is no effective way to revitalize such projectsAs long as the discount of the acquisition is low enough, can cover the cost of capital, management expenses, and can meet the income requirements, you can participate in this kind of project, and exchange time or volume for volume。The sixth category is projects with multiple or several overlapping or overlapping reasons, and the reasons for the dilemma can be imagined to be more complex. Solve this kind of bad projects under constructionA variety of professional teams, which may involve various fields such as law, finance, and real estate, are needed to develop more comprehensive and complex integrated solutions. However, the more difficult the project, the higher the requirements for the team's ability, and the higher the benefits obtained, which are directly proportional to the benefits.
SummaryFrom the perspective of risk level, the reasons for the formation of the first two types of distressed projects are related to the first grade, so they are relatively difficult to deal with and the uncertainty is higherClause.
Categories 3, 4 and 5 distressed projects can be more market-oriented in operation, easier to price, and less riskyHowever, several situations often overlap to produce a more complex and tricky sixth type of dilemma pattern. When investors invest in non-performing projects, they should fully investigate the problems existing in the project, combine their own professional capabilities and industry resources, evaluate the difficulty coefficient of the project's revitalization, and decide whether to invest. 