Commercial Loan Modifications Are On The Way

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.

Banks report that commercial foreclosures increased dramatically in the last year and they expect it to continue through 2013. Commercial property owners are fighting to increase cash flow and save money so that they can make their mortgage payments. It might be a losing battle if they can’t refinance their loans or get a commercial loan modification.

Tenants are the building owner’s lifeblood. Without the rent they pay he can lose thousands of dollars of income and be unable to make his mortgage payments. In this bad rental market, with all the vacant space around, it could take months or even years to replace the income from lost tenants. Bankers are watching this closely. They know that as the owners lose tenants, it will be increasingly difficult for them to make their mortgage payments. For many of them this will mean defaulting on their loans. When the loans were made seven or eight years ago they were usually short-term with interest rates of 7% to 10%. Everyone expected the property market to continue to increase in value and they were expected to refinance the loans when they came due over the next three years. Now with property values at a 30 to 50% discount from when the loans were made, refinancing is nearly impossible.

Although interest rates are lower, property values are sliding down every month. On top of that the landlords are losing tenants and income as businesses fail. Lending practices are now much tighter than anyone expected and they could get worse. When lending requirements are this tight it means that the building owner will find it much more difficult to get the commercial refinancing he needs, even if he has great credit.

One option that might become important is commercial loan modification. Hopefully, commercial loan modifications will work better than residential loan modifications have. Landlords that want these commercial loan modifications will probably need to use a company that specializes in negotiating this type of loan. It is a very complicated process that requires experience to get it done right. If you decide to go this route, check the credentials and experience of the negotiator you hire.

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.

Are you going to be able to Refinance Your Commercial Loan? We will tell you more at www.PalmDesertForeclosures.org.