What would bank say?

Question

I have a commercial tennant that is going to go belly up. I live off the rental income and am not employed right now. On a conservative side I have $600K in equity but only have enough cash on hand to go about 6 months if they default.

Is there a chance my bank will loan any $ if I need to weather a longer storm?

Steve Wilco · Answer

void any relevant exposure to the counter party risk that is reeking havoc to basically every major investment bank at the moment. You see this is where the biggest problem has been for all the US financials. Basically, all the major investment banks have engaged in credit default swaps which allow a buyer or â€˜fixed rateâ€™ party to make periodic payments to a â€˜floating rateâ€™ party in exchange for the â€˜rightâ€™ to a payoff if there is a default or credit event in respect to a third party - called the reference entity. Simplistically, the lower the credit rating of a contracting party the greater the risk that the third party reference entity will default on its payments and this increases the cost of the credit swap.

Dave P. · Answer

Todd,

If you really have that equity, then I would consider getting the property on the market soon.

Matt Todd · Answer

Just need a bit of a cushion to get this tenant out, do some updating and sell or re-lease.
                        
                        Sure, I've considered it, and it would clearly be one of my exit strategies.  Certainly wish I knew more about real estate  :)

Dave P. · Answer

I would think there is someone out there that would loan $600K on a first with a 50% +/- LTV with a strong FICO.......but no income??

That might be a tall order. Ever think about selling?

Matt Todd · Answer

Thanks David, it would indeed be scary if my property is the only one left that   B of A is right side up in   :)

I would think there is someone out there that would loan $600K on a first with a 50% +/- LTV with a strong FICO.......but no income??

Just need a bit of a cushion to get this tenant out, do some updating and sell or re-lease.

Dave P. · Answer

Todd,

One thing to think about is that commercial lenders will do their due diligence much quicker than residential lenders.

Should you become delinquent, they may be in a hurry to foreclose given that you may be the only property owner left in their portfolio with equity left in the collateral.

Matt Todd · Answer

Thanks Jon, I see my banker tomorrow  :)

Jon Holdman · Answer

Could you run do a quick cash out refi based on the current income and stash the cash away?  Banks aren't very willing to do such loans at all right now, but might with your equity spread.  I'd say it will get very difficult if your tenant bails and you have no income at all.

Matt Todd · Answer

Thanks for the reply.
            
            40K sq ft total with one 10K metal and one 30K block and metal combination.  
            $10.5K per month NNN rent with a yearly CPI increase.
            
            Value $1.3M +/-,  I owe $370K.  The area is part of a Fed, State and City refurbishment project of over $1B over the next few years.  Very central location, 1 mile from interstate and very close to the ports.  I would say the upside is very good.
            
            Honestly not sure on a new tenant given the current state of things, but have only seen one warehouse close to me sit for 3 or 4 months empty a few years ago..
            
            Going to look for an agent next week, and talk to my attorney.  Just not sure what my bank would say about $0 income if this guy bails.

Rich Weese · Answer

I would think we need more info. Current value of property? Free and Clear?  If not what is current loan. You should be able to find a commercial lender, but not having a tenant is not going to help. Depressed area? Hopes for finding a new tenant?