The commercial real estate market has become the latest hotbed issue when it comes to distressed properties. After so much has been said about the residential market, commercial properties were almost an afterthought.
However, these properties face the same issues as homeowners. Lower values and lack of financing are pushing more and more commercial properties into foreclosure.
Commercial Loan Workout
A commercial loan workout involves the amendment of the current loan to meet current market conditions. The end goal is to provide an affordable loan that the mortgagee can pay back so that the mortgagor isn’t stuck holding a property it doesn’t want. Banks are not property managers. They don’t want to foreclose and end up with the day to day hassles and expenses. It is in their best interest to keep its borrowers paying the mortgage on a regular basis.
In general, commercial properties consist of a variety of types:
- Condominiums and apartment complexes
- Strip malls
- Office buildings and complexes
- Business parks
- Industrial and Manufacturing Warehouses
- Shopping centers
The list goes on. If you are currently paying a mortgage on a building used for commercial purposes, you can assume your property type would qualify.
What are the solutions?
A modification is a modification whether it’s residential or commercial. In this case, the results will be based on whether or not you can show a property that will survive on modified payments. If so, the savings will be significant.
As with many commercial deals, typical outcomes involve a five year term modified to an affordable level. Other modification options are possible as well, but it’s ultimately going to depend on your situation and what the data is indicating makes the most sense.
The idea through your commercial loan workout is simply to make a permanent change to the terms of the loan that is beneficial to both borrower and bank in situations where traditional methods such as refinancing are not an option.
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