Commercial Loan Modifications: Know Your Options.


Knowing how to pick a commercial loan modification company can be a difficult task. There are many factors to consider and the most important is to first decide whether you are good candidate for a commercial loan mod. Many commercial real estate owners have seen their property values decline between 30% and 50%, depending on where their properties are located. The major reason for the decline in commercial property values for most people, is the vast increase in vacancies seen for multifamily properties, office buildings and retail centers.

The economic recession has forced many businesses, large and small, into bankruptcy, and many renters in apartment buildings have decided to take on roommates or move back in with family. The second reason for falling commercial property values is the fact that it is now extremely difficult to find financing for any kind of commercial real estate. For example, just a few years ago it was common to see commercial loans underwritten with loan to value ratios of 85%, now the new standard is 60%. Most commercial loans are 5 or 10 year loans that balloon. This means that in 2010 there will be a record high number of loans ballooning and no banks or lenders ready to provide financing on these properties.

For many commercial property owners the best option that they have is to initiate a commercial loan modification. The apartment building owner who has seen his occupancy fall from 85% to 50% has no chance whatsoever right now, of refinancing his property without resorting to a hard money lender whose rates average between 10% and 20%. Hard money loans for most business owners under financial hardship are not a realistic solution that will allow him or her to stay in business.

A commercial loan modification offers the property owner the possibility of extending the terms of his or her loan with the lending institution, while lowering the interest rate dramatically and occasionally even lowering the loan principal. Compared to losing the business or paying astronomical interest rates with a hard money lender, a commercial loan modification is the commercial real estate owner’s best option. However, before signing on the dotted line, a commercial real estate owner must do their homework and find out exactly who will be negotiating with their lender and how much experience that company or person has actually performing successful commercial real estate loan modifications.

Experience is the key to success in commercial loan modifications.
If you type in “Commercial Loan Modification” into the Google search engine you will find dozens, if not hundreds of companies that are now offering commercial loan modification services across the United States. As of right now, this is an unregulated industry that doesn’t require any kind of licensing or qualifications. This means that literally anyone can put a sign on their door and call themselves a commercial loan modification company or expert. It is truly a case of caveat emptor. The commercial real estate owner is wise to begin his search by investigating the background and experience of each company that he is considering doing business with. Remember, the best salesman may not do the best job on your commercial loan modification.

Ask these questions about the commercial loan modification company:

  1. Does the commercial loan modification company have lawyers on staff?
  2. Does the company only do commercial loan modifications or is most of their business conducted doing residential loan modifications?
  3. Does the commercial loan modification company have references from successful commercial loan modifications that have been performed?
  4. What are the backgrounds of the key executives? Do they have a long career and track record in the commercial real estate industry?
  5. Does the company offer a money back guarantee on their services?
  6. Does the company have qualified and experienced lawyers on staff?
  7. How is the Google reputation of the company? What kind of information comes up in the search results for Google when you type in the company name?
  8. Has the company published articles or information in any recognized industry journals or websites?

Ask these questions of the person who will be performing your commercial loan modification negotiation:

  1. Who is the actual person that will be negotiating with the bank on my behalf?
  2. How many years of commercial real estate experience does this person have?
  3. Does the commercial loan modification negotiator have any industry designations such as the Certified Commercial Investment Manager (CCIM)?

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