With rising vacancy rates in Atlanta and many owners struggling to maintain profitability, commercial properties are increasingly falling into distress. But not all is lost—if you know when and how to act.
This guide is for commercial real estate owners, investors, and lenders who are facing the complex challenges of managing distressed or underperforming properties. It’s a resource designed to help you understand the signs of trouble, explore your options, and make a forward-thinking move that preserves equity and creates long-term value.
Based on over 25 years of real-world turnaround success, this guide pulls together the key strategies and services that have helped dozens of Atlanta-area properties avoid disaster and regain profitability. We treat every property like our own, and we are with you every step of the way.
Understanding Distressed Commercial Property
Before you can solve a problem, you have to define it. In the world of commercial real estate, a distressed property is one that is facing serious financial or operational challenges. This isn’t just a matter of a few vacant suites. This is about deep-seated issues that threaten the asset’s viability and, if left unaddressed, can lead to significant financial loss.
What constitutes distress? It’s often a combination of factors:
- Persistent vacancies: When a property has a high vacancy rate that refuses to budge, it’s a clear sign of trouble.
- Inability to service debt: Missing mortgage payments or struggling to cover operating expenses means the property is no longer a self-sustaining asset.
- Physical deterioration: A property that is visibly neglected—from the exterior to common areas—will struggle to attract quality tenants.
- Declining tenant quality: The inability to attract and retain stable, creditworthy tenants can signal deeper problems.
In recent years, the economic context—from post-COVID shifts and the rise of remote work to higher interest rates—has placed even more pressure on commercial assets. Once vacancies and neglect set in, the property can begin a “cycle of decline,” spiraling downward unless a strategic intervention interrupts the process.
To learn more about the consequences of waiting, read our related post on Distressed Property Management: Limit Losses & Maximize Recovery.
Warning Signs That Your Asset Is Slipping
Spotting a distressed property early is the first and most critical step toward a successful turnaround. The goal is to act before a manageable issue becomes a foreclosure. Here are the red flags to watch for:
Financial Red Flags
- Rising expenses and declining Net Operating Income (NOI): This is a primary indicator that the property is underperforming.
- Missed mortgage or tax payments: This is a clear sign that the property is no longer generating enough cash flow to cover its obligations.
Operational Red Flags
- High tenant turnover: If tenants are not renewing leases, it suggests issues with the property or management.
- Negative tenant feedback: Unhappy tenants will spread the word, making it harder to fill vacancies and damaging the property’s reputation.
Maintenance Red Flags
- Obvious disrepair: From broken fixtures to peeling paint, physical neglect is often a visible sign of financial distress.
- Safety or code violations: Neglecting to maintain a property can lead to serious legal and safety issues.
Market Red Flags
- Nearby property closures: The decline of a neighborhood or district can indicate larger market challenges.
- New competition: The arrival of a new, high-quality property in the area can leave your asset struggling to compete.
If these signs look familiar, you may be on the path toward an REO property. Our blog post Is Your Asset in Danger of Becoming an REO Property? offers more insight into how to identify and stop this dangerous trend.
What Happens When a Property Becomes REO
For an owner, an REO designation (Real Estate Owned) is a worst-case scenario. It means the lender has taken over the property through foreclosure, and you’ve lost your equity. For a lender, it means an underperforming asset has now become an expensive liability.
The most common outcomes of a property becoming REO include:
- Forced liquidation at a loss: The lender will often sell the property quickly to recover a portion of the loan, frequently at a price below market value.
- Environmental or code liabilities: The lender inherits any pre-existing liabilities, from environmental hazards to code violations.
- Reputation damage: A history of foreclosure can harm the reputation of both the owner and the lender.
- Legal and regulatory headaches: The foreclosure process is a complex legal and financial battle that can drain resources.
The foreclosure timeline can move quickly, and once it starts, it can be difficult to stop. This makes early and strategic intervention so crucial. The proof is in our history. For over 80 years, EpiCity has been a dependable and accountable partner in solving these complex problems for our clients.
How to Stabilize a Failing Asset
The good news is that most distressed assets can be salvaged. The key is to act quickly and strategically. Here are some of the most effective intervention tactics:
Property Triage
Think of this as a rapid-response plan for your property. It starts with a visual and functional inspection to identify and prioritize critical repairs. Sometimes, simple fixes—from landscaping to lighting—can make a big difference in a property’s appeal.
Interim Management
Sometimes an owner doesn’t need a long-term manager, but rather a temporary partner to get the asset back on track. Interim management fills the gap between ownership chaos and a full recovery. It involves stabilizing operations, managing tenants, and preparing the asset for its next phase. It’s a strategic, short-term solution that provides expert support when you need it most.
Short-Term Financial Strategy
A strategic partner can help you take control of your property’s finances by:
- Controlling costs: Identifying and reducing unnecessary expenses.
- Evaluating leases: Renegotiating terms where possible.
- Liquidity injection: Exploring options like partner capital, bridge loans, or tax incentives to improve cash flow.
To get a better understanding of how interim management can work for your property, read our related post on Interim Management Services.
When Adaptive Reuse Makes Sense
Once you’ve stabilized a distressed property, the next step is to create long-term value. One of the most powerful strategies for this is adaptive reuse. This involves repurposing an existing building for a new, often more profitable, function.
Adaptive reuse is a viable strategy in markets like Atlanta, where historical buildings can be reimagined for modern needs. The pros include:
- Lower costs: Adaptive reuse is often less expensive and has shorter timelines than new construction.
- Unique aesthetics: Historically rich properties have a unique appeal that attracts a different kind of tenant and investor.
- Sustainability and tax credits: This approach is eco-friendly and may open the door to tax incentives.
Atlanta provides a number of success stories, including Armour Junction and the Lumberyard Lofts. Both of these projects turned underutilized industrial buildings into sought-after office spaces, proving that old properties can create new opportunities.
To learn more about this strategy and see more examples, read our post on Adaptive Reuse Turnaround.
Choosing the Right Recovery Partner
Taking on a distressed asset turnaround alone can be a daunting task. That’s why choosing the right partner is a critical step in the recovery process. A great asset management firm should offer:
- End-to-end services: From the initial triage to construction management to leasing, they should be able to handle every aspect of the turnaround.
- Local market expertise: A partner who knows the Atlanta market is crucial. They can help you identify trends, assess demand, and connect with the right professionals.
- Legal and financial acumen: A firm with a deep understanding of the legal and financial aspects of distressed assets can help you make sound decisions and avoid costly mistakes.
Be cautious of a poor partner. They may offer a cookie-cutter proposal that doesn’t account for your specific needs, lack a transparent process, or have a poor track record of success.
Since 1935, EpiCity has been a trusted REO asset management firm with deep community roots in Atlanta and a long history of successfully managing and restoring distressed properties. For more details on what to look for in a partner, read our post Finding an REO Asset Management Company.