Birmingham Partner Heather Jamison was featured in Business Alabama discussing how property owners, lenders and investors are navigating the growing number of distressed commercial assets across the state. As market conditions shift and many landlords face challenges tied to low occupancy, rising costs and outdated lease terms, Heather outlined several strategies commonly used to stabilize or reposition troubled properties.

Heather explained that many distress properties share similar characteristics, noting that “typically, distressed properties have either low tenant occupancy or below-market rent.” With rental rates having increased substantially in recent years, she added, “properties with long-term leases and set rental rates have little negotiation power available to increase rental rates.” She also described a trend of landlords becoming more aggressive in declaring tenant defaults in an attempt to unwind below-market leases but warned that “these property owners have to very carefully walk a tightrope to strike the right balance.”

She observed that distressed properties are often owned by private equity firms rather than large real estate companies, which can influence how aggressively they respond to financial stress. “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 said, noting that while this approach can succeed, “it can backfire with a sophisticated tenant.” When properties are burdened by mortgages, Heather explained that owners typically first approach lenders to negotiate relief, whether through a payment plan or a deed in lieu. However, “in some cases, either the property owners have a reason to not approach the lender or cannot work out a solution with the lender,” and in those instances, “property owners must take affirmative action to protect the property.”

Heather also shared examples from her recent work, including a matter involving an industrial landlord attempting to dispossess a paying tenant. Through focused legal positioning, she said, “the parties were able to reach a resolution of the matter, which involved a new lease between the landlord and tenant,” ultimately resulting in a higher rental rate and tenant-funded improvements. Her insights underscore the complexity of distressed asset scenarios and the importance of informed legal strategy.

In closing, Heather’s perspective highlights that distressed commercial properties demand more than simple fixes. She argues that investors and owners must balance aggressive strategies with legal and financial vigilance, particularly when dealing with private equity ownership, tenant negotiations, and risky mortgage structures. Her advice reinforces the need for tactical planning and seasoned legal guidance in a challenging market.

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