Unsold Apartments Can Become a Financial Tool
Translated & summarized from Kikar HaShabbat by baba
Moshe Feldmar, VP at Adit Finance, proposes that unsold apartments can serve as collateral for financing, providing liquidity for real estate developers. This approach allows developers to avoid price reductions and manage cash flow, especially in a slow market. However, careful financial assessment is crucial to ensure the strategy is viable and doesn't merely delay problems.
The story in 5 lines · by baba
- Unsold apartments can be used as collateral for financing, according to Moshe Feldmar.
- This financial strategy can provide liquidity and free up capital for developers.
- Developers should consider what can be done with unsold units, not just how many remain.
- Careful assessment of apartment value and financing costs is essential for this approach.
- The strategy offers flexibility in a slow real estate market.
Moshe Feldmar, VP of Marketing, Sales, and Business Development at Adit Finance, suggests a novel financial approach for real estate developers facing unsold inventory. Instead of solely focusing on selling remaining apartments, which might necessitate price reductions that could devalue the project, developers can leverage these unsold units as collateral for financing.
This financial strategy allows developers to generate liquidity, settle existing obligations, and free up capital for ongoing operations. Feldmar explains that unsold apartments, particularly high-quality ones with clear value, can be viewed not just as inventory awaiting a buyer, but as assets that can provide financial flexibility, especially when the developer is unwilling or unable to sell at a lower price.
However, Feldmar cautions that this solution is not universally applicable. Developers must carefully assess the value of the apartments, the loan-to-value ratio, financing costs, project cash flow, potential rental income, and the likelihood of future sales. If financing costs are too high or the assets cannot be realistically liquidated, the financing might only postpone the problem.
The core question for developers, Feldmar advises, should shift from "how many apartments are left to sell" to "what can I do with these apartments in the meantime." In a strong project with desirable assets and a developer capable of managing cash flow, using unsold inventory as a financing source can create significant operational room, particularly in a slow market where buying time can be valuable. Ultimately, unsold inventory doesn't have to signal a stalled project; it can be a manageable asset, with the key being the developer's ability to see beyond the sale price to the apartment's role in the project's financial structure.