What to Do With a Distressed Commercial Property

A commercial loan restructure can reduce the amount of interest paid by a borrower or even lower the remaining principal amount still owed on a loan. A loan restructure is available to both businesses and individuals that own commercial properties such as office buildings, shopping centers, strip-malls, hotels, apartment buildings, industrial complexes, and even some properties still in the construction phase.

Obtaining a loan restructure can be difficult, especially if the loan is what’s known as a commercial mortgage-backed securities loan or CMBS loan.

CMBS are bonds that are sold on Wall Street to investors all around the world. The bonds are used to fund investments on portfolios of commercial loans. The income stream from the property is passed from the property owner to the bond holders.

Many of the problems we are seeing today with CMBS loans are due to the fact that years ago underwriting standards became relaxed as intense lending competition resulted from a race for a diminishing population of qualified borrowers. Ratings agencies gave CMBS bonds A-A-A ratings. But the subsequent losses in the CMBS market led to the seizure of that (CMBS) market at the end of 2007.

Once a commercial property goes into default, that CMBS loan is then usually managed by a type of specialist known as a special servicer who represents those bond holders. CMBS loans are often more difficult to modify, as the original issuer of the loan is no longer involved and the beneficiaries are individual and institutional investors that sometimes are located over many states and countries around the world.

Going It Alone

It is difficult for a struggling commercial-property owner to obtain a loan restructure on his own, as most commercial-mortgage borrowers don’t know the proper procedure to present and ask for a restructure. A commercial property modification for a distressed property involves difficult negotiations, in-depth market research, financial analysis and hours of tedious data collection, discovery, verification and reporting. Most of this work is alien to the commercial property owners.

Commercial property loans are often times structured as portfolio loans since they are generally not securitized like single family residential loans. This structure makes the actual note holder more readily identifiable and approachable permitting an experienced commercial property loss mitigation professional to be much more effective in negotiating a solution that is beneficial to both parties.

For a commercial loan restructure to be negotiated successfully, the bank or special servicer agrees with the borrower to permanently (or sometimes temporarily) alter the terms of an original note allowing the monthly payment to be reduced. This agreement can be reached through a series of several strategies including (but not limited to) a straight interest rate reduction, modifying the loan from principle and interest to interest only, a principle reduction, a longer amortization schedule or some combination of these strategies.

Call In the Calvary

There are two crucial factors to make sure that the negotiations for a commercial loan restructure will yield positive results. The first of these is getting the advice of professionals and experts who are very familiar dealing with troubled assets; and the second important factor is being proactive. By being proactive is meant that the commercial property owner has to have the foresight regarding foreseeable problems in the future-the longer he waits to address a looming bad situation or the longer he waits to get help, the more difficult the situation becomes to handle.

The most important thing an owner of a distress commercial property can do is to be proactive by seeking the help of professionals and experts in the commercial property restructuring industry.

Commercial property loan restructure professionals are familiar with the complexities of a commercial loan modification and knowledgeable in the kinds of information and documents that special servicers and banks require when a property owner applies for a loan restructuring.

The services offered by a commercial restructure consultant would include a go-forward plan to salvage the owners’ investment in the property. Every case is different, and the services offered would depend on the needs of the client.

Possible outcomes for commercial restructure include:

· Term extension: This is when the bank agrees to extend the maturity on a loan that cannot be refinanced because of high loan-to-value (LTV), but has cash flow sufficient to service the debt.

· Permanent modification: Often, a complex transaction that the bank is reluctant to do as it often reduces the value of the asset on the banks books.

· Principal reduction: These are usually only done in relation to a short sale or short refinance where the bank accepts less than the full value to settle the debt. The bank won’t reduce the principal so the property owner can make a profit.

· New equity partner: The bank is more likely to work with a borrower that is willing to release equity in the property to a new investor that comes in with cash.

· Bankruptcy: Unlike residential property, when an individual is in bankruptcy, the judge can “cram down” or reduce the principal or otherwise modify the terms of the mortgage.

A professional who knows the ropes will minimize the stress for the property owner, but more importantly, certainly improve the chances of success, and speed up the negotiation process. Commercial loss mitigation experts with a solid track record in executing successful loan workouts are worth their fees, as they more often accomplish their primary objective, which is to avoid the repossession of the commercial property.

Jeramie Concklin

CEO – Alliance Commercial Group [http://www.alliancecmbs.com/]

Jeramie Concklin is CEO of Alliance Commercial Group, one of the nation’s leading commercial loan modification firms. Our team of Attorneys, MBA’s, Accountants and Real Estate Professionals have assisted companies avoid the pitfalls associated with their commercial mortgages that are being called due; helping them keep their property and turning a non-performing asset into a performing asset.

The responsibilities I have encompass all aspects of the operation, from marketing and sales, negotiation strategies and product delivery, as well as shareholder reporting.

My outside activities include speaking publicly to commercial property owners, brokers and bankers at various industry events about effective restructuring of securitized commercial property debt.

Chain-Link Fencing Is the Best Choice for Industrial and Commercial Security

Chain-link fencing is the best fencing material for many industrial, commercial, government, and public applications. Due to its durability, strength and various height options, professional installed chain-link fences provide a perfect safety barrier to deter people and animals away from potentially dangerous or sensitive structures such as electrical substations or mine sites. For more protection, barbed wire or razor wire attached to the top of the fence discourages any attempts to breach a perimeter.

Other uses of chain-link fences include correctional facility containment, airports security, highway projects, baseball fields, tennis courts, military bases and more. The open weave of the wiring allows maximum transparency to support observation of activities both within and outside of the fencing. Fencing is available in a variety of gauges and sizes depending on the particular function of a fencing enclosure. Customized gate construction is available as part of the fence installation.

Because of its metal makeup, industrial-strength metal fencing does not bend, providing a rigid barrier. Non-residential fencing for commercial and industrial sites has posts with a larger diameter and heavier wall pipe to maximize strength.

An added benefit of chain-link fencing is affordability. Compared to other fencing options with similar strength and visibility benefits such as wrought iron, chain link fencing helps keep costs down. Non-residential chain-link fencing for commercial and industrial sites involves posts with a larger diameter and heavier wall pipe to maximize strength. Of course, proper installation is required to maximize the function and durability of the fencing.

When requesting bids from professional fencing contractors for a chain-link fence installation, it is important that all bids adhere to the same specifications. Lower bids can result when specifications are unclear or bids contain different gauges and sizes of fencing components, making them difficult to compare.

Selection of a professional chain-link fence installation company should be based on several factors aside from the bidding process. Professional installers with extensive experience in commercial and industrial jobs are most likely to offer the level of skill required to meet any fencing goals. Look for a company that has a firm reputation with professional associations such as their local chapters of the Associated General Contractors of American, or Associated Builders and Contractors, Inc. Some other good ways to find the best fencing contractor is to see if they have won awards, look through their portfolio, and to ask for references from other customers.

Don’t forget to find out about the contractor’s safety program and safety record. Fence installation professionals that are bonded and licensed and have an exemplary safety history are at least if nor more important than price itself. Experienced contractors will gladly offer you a free consultation.

Strength, value, security, and professional installation combine to make a commercial or industrial chain-link fence the preferred solution for most projects. With the added bonus of being rather quick to install, your fencing project will be completed right when you need it.

Facing the Commercial Real Estate Crash Without Fear

According to a Congressional Oversight Panel Report made on Feb. 10, 2010: “Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present underwater… Commercial property values have fallen more than 40 percent since the beginning of 2007.”

Despite the difficulties commercial real estate is facing, there are opportunities for entrepreneurs interested in the industry. Commercial properties bring about some high-quality investments. Additionally, there are an abundance of options for commercial property owners to survive the current hardships being faced.

For example, an available option is the Tax Increment Financing (TIF) Program. With the TIF Program, money from a sold bond goes directly to developers or property owners in the form of a municipal bond so they may continue with the project. It’s not a loan because a development’s taxes are utilized to pay the principal and interest back on the bonds. There are plans to utilize the TIF program with the rebuilding of Lower Manhattan, which includes the World Trade Center area, as a revenue source for this development project. However, the Tax Increment Financing Program can be used for any size project that helps further the community it is in.

These types of tax credits are increasingly available as well as especially beneficial for developers of affordable housing projects. If a condominium project is in danger of defaulting on their loans due to lack of sold units, commercial mortgage investment companies can restructure the plans for the condominium property. It can be achieved by converting it into an affordable housing project, which includes housing for low-income families, the elderly, and persons with disabilities.

Another option is the American Recovery and Reinvestment Act of 2009, where housing and other commercial real estate projects can be funded for energy efficiency upgrades. There will be $6 billion for energy efficiency and conservation grants for housing and other commercial buildings. Additionally, $5 billion will be available for low-income housing weatherization assistance and $2 billion for the efficiency efforts with federally assisted housing projects.

Many commercial real estate owners and entrepreneurs are not aware of the multitude of opportunities available to avoid loan default. A resourceful Mortgage Investment Company can help you discover them. These trained professionals discover funds and resources that you may not know are accessible in addition to helping you simplify the mortgage restructuring process. There are also funds available through the creation of joint ventures among investors, developers and commercial real estate owners.

Such connections could aid in the prevention of many commercial mortgage loan defaults by allowing owners/developers and investors to share resources and minimize risk. In order to avoid default, commercial property owners can work with investment companies to find investors to partner with and optimize the return on a property. Joint ventures allow investors to strengthen a commercial property and provide the owner with additional resources for the property. A Mortgage Investment Company can help foster this type of partnership in order to avoid loan default.

The commercial real estate industry is expected to experience the next big collapse in this already faltering economy. Commercial loans are defaulting at an ever-increasing rate. Despite these issues, there are opportunities for commercial property owners, developers and investors to work together with the help of mortgage restructuring companies to avoid loan default. Contact a Mortgage Investment professional to help start your commercial debt restructuring today.