Avatar's Blog
» Careful Stewardship of Property
Recently, Avatar Financial Group ran into an interesting scenario with a residential apartment complex located in California. The building was developed and used as an apartment building. It was sold a few years ago to a non-profit organization. The new owners wanted to remove the existing tenants and place tenants in the building who served the organization. This seemed like a good idea, as it would provide housing, community, and a real benefit to the organization's people.
In order to be able to remove the existing tenants, a government zoning regulation required the organization to make a determination to remove the building from the status of being in the rental housing market permanently. The organization stewards signed the documents and the buildng was removed from rental status and the tenants removed to make way for the organization's new purpose.
Sometime later, the organization wanted to use the building as collateral to generate working capital for community projects. They approached lenders only to find that title to the building, restricting it from ever being used for rental purposes, has dramatically reduced the value of the property. Borrower and lender are now trying to obtain a determination as to whether, should the building be sold or transfer hands again, it can ever re-instate it's status as a residential rental property. If not, it will be almost impossible to sell the building at all. Only the raw land will have any value at all. Be careful how you steward your investment properties. What seems to be a good idea today may have long term and far reaching consequences.
