Will You Be Able To Refinance Your Commercial Loan
As I look around anywhere I have been lately, I see many commercial building with multiple vacancies. Some are even completely vacant. Looking at these sad properties it is easy to see that recession is hitting the commercial section hard. Most of the news focuses on homeowners losing their houses, but the bigger problem might be commercial property owners that are going to lose their property.
That’s right. Commercial landlords and property owners are in trouble. As the recession lingers, once thriving businesses are forced to cut employees and downsize. That means they don’t need the manufacturing facilities, office or retail space they did before. As the business cycle continues, many businesses fail and leave empty space behind. The owners of these commercial properties are left holding the bag when they lose their tenants.
Newspapers are reporting that commercial foreclosures have increased dramatically in the past year and that they will continue to increase over the next year. To avoid this, many commercial property owners are scrambling to save money and increase cash flow. They might also need to refinance their loans or get commercial loan modifications.
When a building owner loses a tenant, it can mean thousands of dollars in lost revenue. In this market, attracting a new tenant to replace that income could take months or even years. Lenders are watching this closely, worried that more of these large borrowers will default on their loans. These commercial loans were usually short term, interest only loans that paid the banks from 7% to 10%. When they were made, everyone expected property values to continue to increase as the had been, so they could be refinanced easily. That has not happened and it is creating big problems.
Just at the time these commercial property owners need to refinance they are being hit by a double whammy. They are losing tenants along with the income they provide and property values have plummeted to about half what they were when they first secured their loans. With less income and lower property values they are finding themselves upside down with their loans. Many of them owe more than their properties are worth. It is the same problem faced by millions of homeowners around the country.
About the only thing will save many of them is a commercial loan modification. Hopefully they will be available when the landlords need them. Commercial loan modifications should help these landlords more than the residential loan modifications have helped homeowners. Most of the loan modifications, so far, have only lengthened the payout from 30 years to 40 or more. That doesn’t really solve the problem because the homeowner is still upside down in his mortgage and still owes more than the property is worth. The only thing that will really work, is to reduce the principle of the mortgage so the borrower is not underwater anymore. Otherwise there’s no way to refinance.
Getting started is not hard but requires a lot of paperwork. There’s a detailed application that needs to be filled out along with all the financial data that the property generates. A commercial appraisal needs done and that’s pretty expensive. The commercial negotiators that I just mentioned know exactly what to do to help smooth the process tremendously. Once you make the decision to go forward, it should go pretty smoothly because both the negotiator and the bankers are professionals who deal with this everyday. So if this applies to you, get started now before it’s too late.
Commercial Loan Modifications are coming as balloon mortgages come due between now and 2013. We will tell you all about it at www.PalmDesertForeclosures.org.
