Distress Sales in Real Estate: Refinancing Westside Retail Center & Beacon Office Building

This article discusses the refinancing of two distress properties in the real estate industry, Westside Retail Center and Beacon Office Building. It analyzes the benefits of taking loans from TD Bank and AMB Insurance and concludes that Miami River Inc. should take a loan from TD Bank for Westside Retail Center and from AMR Insurance for Beacon Office Building.

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Running head: REAL ESTATE INDUSTRY
REAL ESTATE INDUSTRY
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Introduction......................................................................................................................................2
Westside Retail Center & Beacon Office Building.........................................................................2
Conclusion.......................................................................................................................................4
References........................................................................................................................................5

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Introduction
Distress sales in real estate is the sale of distress properties which are not able to be
maintained by their owners or is suffering due to its poor condition. In this kind of properties
there exists high risk of foreclosure specifically due to non-payment of taxes or mortgages
(Amromin, Keys and Murton, 2016). After Tom Peterson being the President of Miami River
Inc. bought these distress properties of Westside Retail Center and Beacon Office Building in
2012 and maintained them effectively that helped these properties to perform well. He is
currently in a position of refinancing these properties in order to pull out as much as equity
possible for reinvesting in a new apartment.
Westside Retail Center & Beacon Office Building
In case of Westside Retail Center the loan amount is 6000000 dollars which is invested to
refinance the 45000 square feet area. Along with that the interest rate that is being offered by the
TD bank was initially 6.5 %. Miami River Inc. have availed the opportunity for the past three
years from 2012 to 2015. Notably, as per data of October 2015, only 900 space is not leased or
vacant in Westside Retail Center (Danis, Rettl and Whited, 2014). Hence the invested have a
probabilistic future benefits. The payment that the company have to pay due to its loan have
certain valuations. Hence, comparison of NPV can be made within the payments that the
company have to make due to the loan and refinancing from TD bank as well as AMB insurance.
These comparison first of all will give the assurance that whether the loan have a beneficial
present value that can give future returns. If the benefits are positive then the investment in terms
of debt can be encouraged. Thus through computation it is been seen that there exists present
value benefits in terms of investments for both Westside Retail Center and Beacon Office
Building. So the debt segment is examined.

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The calculations revealed that the equity investment for both the properties are 1500000.
But the change in payment for a 3 years of repayment of loan as in case of TD bank has different
financial scopes. In the same way in case of AMB insurance there exist opportunity to repay the
loans for 10 years and hence the financial scopes have different flaws and fortes (Eichenbaum,
Rebelo and Wong, 2018). It is been seen that Miami River Inc. has to bear more payment upon
their principal amount in case of Beacon Office Building if it takes loan from TD bank. Whereas
if the same amount of loan is being taken from AMB Insurance for Beacon Office Building by
Miami River Inc. then less amount it have to pay for its principal amount apart from its interest.
Along with this it is also been observed that in case of Westside Retail Center the loan of 6
million if be taken from TD bank then the opportunity is high to pull out the equity as the
repayment amount may be same but Miami River Inc. have only to bear the payment for interest
and not for the payment for the principal (Xu, 2017). Clearly the interest amount that Westside
Retail Center needs to get refinanced is 5.50 % in case of TD bank but AMB insurance is giving
the same loan at 5.25 % interest rate. While the term period for the repayment of the loan is for
TD bank is for 3 years but in case of AMB insurance it has a tenure of 10 years so that it may
seem that the interest upon loan is low in case of AMB Insurance and the tenure is also long
which will render less pressure upon the repayment amount and more amount can be taken kept
to lower the debt and pull out the equity (Harford, Klasa and Maxwell, 2014). But it is been seen
that taking loan in case of Westside Retail Center is better to be taken from TD bank than AMB
Insurance due to the reason that it may seem that it have lower interest upon loan as well as the
tenure is long but the proportional amount that is been paid upon the principal apart from the
interest is very high. It is been seen that the extra amount that is been spent to repay the principal
of loan is 38,125.02 dollars in case of AMB insurance whereas in case of TD bank that is

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37615.77 dollars. This is the reason for which Miami River Inc. should take loan from TD bank
in case of Westside Retail Center (Fields et al.., 2018). Moreover, in the same way the loan that
should be taken for Beacon Office Building by Miami River Inc. should be from AMR insurance
as the amount paid to repay the principal loan is lower in case of AMR insurance than in case of
TD bank in case of Beacon Office Building. If loan is been taken from TD bank then the cost
that have to be bear by Miami River Inc. in case of Beacon Office Building is 190,664.53 dollars
whereas the burden that Miami River Inc. has to bear a amount of 46, 139.05 dollars in case of
AMR insurance.
Conclusion
Thus it can be concluded that the loan for Beacon Office Building should be taken from
AMR insurance while in case of Westside Retail Center the loan that should be taken by Miami
River Inc. should be from TD bank. As this will lower the debt as well as well help in pulling out
the equity due to the reason that less amount of payments will be carried by the company to
refinance these properties at a state of positive returns.

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References
Amromin, E., Keys, B.J. and Murton, A.J., 2016. Mortgage refinancing during the great
recession: the role of credit scores. Chicago Fed Letter.
Danis, A., Rettl, D.A. and Whited, T.M., 2014. Refinancing, profitability, and capital
structure. Journal of Financial Economics, 114(3), pp.424-443.
Eichenbaum, M., Rebelo, S. and Wong, A., 2018. State Dependent Effects of Monetary Policy:
the Refinancing Channel (No. w25152). National Bureau of Economic Research.
Fields, L.P., Gupta, M., Wilkins, M. and Zhang, S., 2018. Refinancing pressure and earnings
management: Evidence from changes in short-term debt and discretionary
accruals. Finance Research Letters, 25, pp.62-68.
Harford, J., Klasa, S. and Maxwell, W.F., 2014. Refinancing risk and cash holdings. The Journal
of Finance, 69(3), pp.975-1012.
Xu, Q., 2017. Kicking maturity down the road: early refinancing and maturity management in
the corporate bond market. The Review of Financial Studies, 31(8), pp.3061-3097.