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Lenders’ Big Question: Sell or Lease REO?

The question of value-add through leasing REO vs. selling is a frequent question, but "at its core, it is a ‘cost/benefit’ question," Situs' Maute tells DAI.

By Natalie Dolce | Updated on June 15, 2012

A 131-unit apartment building in Michigan was appraised for $7 million in the spring of 2010. At the time, the market was frozen in Michigan. Appraisal in the summer of 2011 came in at $10.4 million, based on increasing NOI.

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For this particular Michigan property, the strategy was to hold the asset until the market showed signs of recovery in Michigan, and work on leasing up the non-stabilized occupancy.  “NOI has been improving with higher occupancy rates and fewer lease concessions,” explains John Maute, a senior managing director at Houston-based Situs Cos. “Improving economy in the State of Michigan for the past 12 months is bringing back out-of-state buyers.”

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