No one opens a restaurant or retail business expecting to fail.
Complicated algorithms can determine success. Maintenance costs go up. The location isn’t ideal. Workers don’t show up.
Owners of distress properties in Alabama have options, though, experts say.
Carter Burwell is managing director at JLL Real Estate in Birmingham. He specializes in tenant representation and site selection for office and industrial occupiers throughout Alabama.
JLL gained a lot of experience with distressed properties during the Great Recession and beginning stages of the COVID-19 shutdown, he says. “Now we are seeing it again with the current reset in office markets in Alabama and across the country,” Burwell says.
Good communication between all parties makes it easier to turn things around along the way, Burwell says.
“It will serve them well to communicate early and often with their lenders, tenants, vendors and anyone else that may be affected by their current situation,” Burwell says.
Fortunately, experts in these situations are available to help.
“When landlords find themselves in financial distress, the first thing they need to do is partner with a seasoned real estate attorney that understands lenders and tenants and has a lot of experience in this area,” Burwell says.
Selling the property seems like a quick fix but might not be the best solution.
“It can be almost impossible to sell a property in a distressed market,” Burwell says. “Often times the best — and only option — is to find a way to hold on and wait for the capital markets to turn in a positive direction.”
Even a quick AI search offers suggestions for owners of distressed properties.
Commercial real estate owners can try loan modifications with extended terms, delayed payments and lower interest rates; forebearance agreements that pause payments; a deed in lieu of foreclosure; short sales; refinancing; or strategic bankruptcy.
Lenders can offer loan workouts or modifications, non-judicial foreclosures that invoke power of sale clauses, or loan purchases.
Investors in distressed commercial real estate can consider direct purchase through foreclosure or bankruptcy or acquiring the loan from the existing lender at a discount. Other options are converting the property to offices or residential real estate or hard-money loans for a fix-and-flip.
When a sale seems the right way to go, private equity firms are always on the lookout for a good deal.
Heather Jamison is a creditors’ rights and bankruptcy partner at Birmingham-based law firm Burr & Forman’s real estate practice. The firm is part of a growing cohort of private equity-backed players that are buying office, industrial and mixed-use buildings at steep discounts.
Tools they use for distressed asset transactions include loan-to-own strategies, lease renegotiations, forbearance agreements, receiverships and foreclosures.
Typically, distressed properties have either low tenant occupancy or below-market rent, Jamison says.
“Right now, especially for industrial property or retail property, tenant occupancy is low,” she says.
In recent years rent has increased substantially.
“This means that properties with long-term leases and set rental rates have little negotiation power available to increase rental rates,” she says.
Their office is seeing landlords become very aggressive in declaring defaults in an attempt to dispossess below-market leases. After that, however, the landlord is faced with the problem of finding a tenant for the vacant space.
“These property owners have to very carefully walk a tightrope to strike the right balance,” Jamison says.
Distressed properties are often owned by private equity rather than a large real estate company, she notes.
“In this case, without other properties to offset the loss from distressed properties, private equity becomes very aggressive in attempting to address the distressed property,” she says.
Sometimes the approach is successful, Jamison says, “but it can backfire with a sophisticated tenant.”
Most distressed properties have a mortgage. In those situations, the property owners’ first steps typically are to approach the lender to work out a payment plan or provide a deed in lieu for the property, Jamison explains. That gives title to the lender in exchange for forgiveness of the mortgage.
“In some cases, either the property owners have a reason to not approach the lender or cannot work out a solution with the lender,” Jamison says.
In those situations, “property owners must take affirmative action to protect the property.”
The most likely option is bankruptcy protection – usually Chapter 11 so the owner can keep the property. That’s expensive, though, and can be prohibitive to the owner of a single distressed property.
In one recent situation, an industrial landlord attempted to dispossess a paying tenant, Jamison recalls. Through aggressive litigation and positioning, “the parties were able to reach a resolution of the matter, which involved a new lease between the landlord and tenant,” she says.
The landlord came away with a higher rental rate and concessions from the tenant to make improvements on the property.
One real estate firm in Mobile is finding that lenders are willing to work with owners of financially distressed properties.
Chris Harle is managing broker of Commercial Sales and Leasing at White-Spunner Realty in Mobile.
“We expected a large influx of distressed properties over the last year or so from people who borrowed money five years ago at 3% or 4% with a five-year term,” he says.
If they refinanced now rates would be almost double and the figures wouldn’t cash flow for them, Harle says.
“However, that hasn’t really happened. Banks have worked with them to try and adjust term or payments and keep them above water.”
Deborah Storey is a Huntsville-based freelance contributor to Business Alabama.
This article appears in the November 2025 issue of Business Alabama.
