However; the STR loophole and REPS are completely different things. 

Or would you just use the cash flow from your old unit to make up difference?

Investors they are on a different time clock. 

If you think you can find a higher quality tenant, then that is a different conversation entirely. 

Since the property has vacancies, a buyer might discount for lease-up risk, so that’s something to factor in.I owned a multi-use property in IL that is definitely different than what you're looking at.

STR loophole works under different rules, and you can read more about it here:https://www.biggerpockets.com/forums/51/topics/1122635-the-s...While REPS is clearly not recognized by CA, their conformity to the STR loophole rules is unclear.

I think @Brian G. and @Jaycee Greene hit it on the head: an event occurring/debt resetting.When the debt forcefully resets on some of these assets, valuations drop if the submarket cap rate has expanded and/or if the operator can not show a good t-3, t-6 etc due to economic vacancy and rising opex (insurance, r&m etc).If the operator can't inject equity to cover the difference, then trouble arises.

It may require different insurance too..

My take is a little different than most of the posters.  

debt consolidation 20 months ago" is very different than bankruptcy.