Browsing: commercial mortgage modification

Commercial Real Estate
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The vast majority of companies that facilitate loan modifications in the United States are solely dedicated to helping residential homeowners. It can be difficult for the commercial property owner who needs a commercial loan modification to actually find a company that has experience and knowledge in processing successful commercial loan workouts.

The commercial property owner who is facing the prospect of foreclosure has a few different options when he or she is attempting to modify their loan. For an illustrative example I will use a real life situation of a client of mine in Tampa, Florida. We won’t use their real names for privacy purposes and we will use the fictional name of Blue Harbor Apartments for their property.

Commercial Loan Modification: a Hypothetical

They own a 250 unit apartment building that they purchased for 8.3 million dollars in 2006. In the last year they have seen occupancy drop to 65%. This increase in vacancies has severely hurt their net monthly income. Their monthly rental income is now $92,000.00. Their expenses, including the mortgage payments are $118,000.00 a month. They are currently coming out of pocket over $20,000.00 a month just to hold on to the property. The loan they have is held by a major international bank and is amortized over 25 years at an interest rate of 7.5%. They are in a tough situation because the value of their property on today’s market is approximately 6 million dollars. They are unable to refinance with another lender because they don’t have any equity in the property. The only choice they have is to try to modify the commercial loan.

Commercial Real Estate
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commercial-loan-modificationAs the residential real estate market has seen a massive level of mortgage delinquencies and foreclosures over the past twelve months the commercial real estate market so far has not seen the same kind of fallout. However, this could soon change. In fact, Apartment Finance Today dedicated an entire section of their industry magazine in July to what they title “The Gathering Storm” in commercial real estate.

There are quite a few factors that have contributed to the coming problems in commercial real estate and one of the main issues is the fact that many commercial real estate properties were purchased with loans that were backed by commercial mortgage backed securities (CMBS). These CMBS were underwritten with extremely aggressive terms, often offering as much as 90% financing with loan terms that only stretched for five years. Now, according to Apartment Finance Today, apartment building values have dropped as much as 30% and those loans are beginning to become due. “As apartment values continue to descend, the LTV ratio of existing debt gets skewed. A loan that was made at 75 percent LTV two years ago may now be at 85 percent LTV or higher,” said says Don King, head of national agency lending at Needham, Mass.-based CWCapital.