Major Repairs Needed - thoughts?

[Nik Divakaruni]

All, 

I'm a rather seasoned multifamily investor, and currently own 9 buildings, ranging from 4 to 10 units.  I've had mostly good luck in getting good appreciation on ones that I've sold, and working to bring costs down on buildings that were very high.

Well, I've run into my first major problem, and wondering how folks have dealt with it.  We acquired a building in a B area with C tenants - not paying the highest rents, but they paid on time (mostly) and were OK with the condition of their places being lower than I would like, in exchange for lower rent.  The intent was to deal with more pressing issues in other areas of my portfolio before getting to these.

This came back to bite me, as we've found out that there are two major things that the inspections missed.  The roof needs to be replaced (I knew it would be, I didn't realize it was in as bad of shape as it is, and the whole fire escape apparatus for the three floors needs to be addressed).  

Estimated repairs on them are nearly 50% of what I paid for the building.

Has anyone encountered this before?  If so, did you completely remodel?  Just do the requisite repairs?  Thinking about shutting down the building and completely gutting/remodeling it (and adding submeters for all utilities) and then bringing rents back up.  Good news is that rents are way below market, so just increased rents would be a major equity lift.

Curious to see how others have handled this scenario.  Thanks!

Nik