Commercial property owners are requesting help from consultants for the purpose of modifying their commercial loans at CommercialModification.com. Building owners are looking to preempt defaults as they can see that their notes are coming due or resetting and there is not enough equity to refinance.
The recent projects we have seen come through the site include two 42 unit buildings valued at over $6 mil., that have been put into default by the servicer because of missed property tax payments. Current occupancy is 95% and rent roll $62K. The owners is trying to reinstate with better terms or refinance.
An owner of a retail showroom and warehouse in northern California who put $1 million down payment a few years ago has lost nearly all his equity. He is now two months behind and making weekly payments on a loan that is close to the value of the property.
The owner of a 16 unit apartment complex in Mesa, AZ., who put $300K down 3 years ago has a loan reset in Jan 2010 when it adjusts upward. It is now only worth $400K and the loan amount is $688K. The owner of this loan faces a substantial loss if a modification is not completed before the reset date as financing is unavailable to pay off the resetting loan and the property would sell for substantially less if there were a forced liquidation. The cash flow on the property is insufficient to cover the debt load so modification is a best case scenario.
This property owner wanted to consult with firms who have a good track recorded in designing modification programs that are acceptable to the bank and servicing companies. A third party negotiator always puts you in a superior bargaining position in any type of negotiation.
The owner of 37 units in Darby PA purchased for $1,400,000 and now only worth $450,000 has a loan of $825,000 @ 13% fixed. This is another case where the debt service is a hardship because of declining rents and increasing vacancies.
Each of these unique situations present challenges for both the lender and borrower. Special Servicers, who are hired by mortgagors to deal with large commercial loans that are in default or likely to default, now have more leeway in negotiating workouts with property owners whose mortgages have been financed by selling shares to investors in the form of commercial mortgage backed securities.
Prior to a recent IRS rule change (IRS 09-45), special servicers had been opposed to any change in the status quo. The barrier removed by the Treasury department, which I applaud, allows the REMICS's to change the terms of these loans without jeopardizing their tax exempt status.
Sunday, September 27, 2009
Wednesday, September 23, 2009
Leadsnet Inc Press Release
Sep 23, 2009 – South Lake Tahoe, CA. Today Leadsnet Inc. a leading provider of commercial mortgage leads announced their marketing partnership with Genesis Financial and Real Estate Services of Scottsdale Arizona. Genesis provides loan and workout consulting services to owners of commercial properties nationwide.
"This partnership allows us to bring more value to the table on behalf of commercial real estate owners who want help in negotiations with mortgage servicers", says Ted Schmidt, President of Leadsnet. Leadsnet owns and operates the commercial mortgage modification web portal www.CommercialModification.com, the country’s top ranked website for commercial modification queries.
With the number of commercial loans coming due in the next few years combined with the fact that commercial real estate values have fallen often 30% or more, balloon loans that are maturing will fail. Properties with income sufficient to service the debt cannot even refinance if the value of the property is less than the indebtedness. This imbalance is estimated to be about $270 billion and growing.
Many commercial properties are experiencing increased vacancies along with decreasing rental rates. This disastrous combination makes the monthly debt service almost impossible for borrowers. “Sometimes there is a better alternative to foreclosure” quotes Roger Simard, president of Genesis Financial and Real Estate Services. “In our consultative and advisory role, we use our extensive network of experts in accounting, commercial real estate and bankruptcy law and mortgage lending to assist us.
Sometimes alternative solutions such as purchasing the note, to assist the owner in stabilizing their property or bringing in an equity partner is the best solution”, added Simard.
Recent changes in IRS tax rules allow owners of commercial property whose loans have been packaged into CMBS (commercial mortgage backed securities) and sold to investors by REMIC's (real estate mortgage investment conduits) to modify loans prior to default without jeopardizing the REMIC's tax exempt status.
"Since the IRS rule change last week we have seen a marked increase in traffic and lead production at our website. The past cases that we have attempted modification on and were denied because they were CMBS loans, can now be reworked in light of the changes, With Genesis on board, I am confident that the commercial property owners we refer are in very capable hands", says Mr. Schmidt.
"This partnership allows us to bring more value to the table on behalf of commercial real estate owners who want help in negotiations with mortgage servicers", says Ted Schmidt, President of Leadsnet. Leadsnet owns and operates the commercial mortgage modification web portal www.CommercialModification.com, the country’s top ranked website for commercial modification queries.
With the number of commercial loans coming due in the next few years combined with the fact that commercial real estate values have fallen often 30% or more, balloon loans that are maturing will fail. Properties with income sufficient to service the debt cannot even refinance if the value of the property is less than the indebtedness. This imbalance is estimated to be about $270 billion and growing.
Many commercial properties are experiencing increased vacancies along with decreasing rental rates. This disastrous combination makes the monthly debt service almost impossible for borrowers. “Sometimes there is a better alternative to foreclosure” quotes Roger Simard, president of Genesis Financial and Real Estate Services. “In our consultative and advisory role, we use our extensive network of experts in accounting, commercial real estate and bankruptcy law and mortgage lending to assist us.
Sometimes alternative solutions such as purchasing the note, to assist the owner in stabilizing their property or bringing in an equity partner is the best solution”, added Simard.
Recent changes in IRS tax rules allow owners of commercial property whose loans have been packaged into CMBS (commercial mortgage backed securities) and sold to investors by REMIC's (real estate mortgage investment conduits) to modify loans prior to default without jeopardizing the REMIC's tax exempt status.
"Since the IRS rule change last week we have seen a marked increase in traffic and lead production at our website. The past cases that we have attempted modification on and were denied because they were CMBS loans, can now be reworked in light of the changes, With Genesis on board, I am confident that the commercial property owners we refer are in very capable hands", says Mr. Schmidt.
Wednesday, September 16, 2009
IRS Relaxes Rules for Modification of Commercial Mortgages
Effective today, the IRS has issued a new rule (IRS Revenue Procedure 2009-45 http://www.irs.gov/pub/irs-drop/rp-09-45.pdf) that eases the restrictions on modifications of commercial mortgages that have been packaged into commercial mortgage backed securities.
This action allows borrowers to open discussions with the loan servicer prior to any default in an attempt to work out the loan. Prior to this new rule only a very small number or loans in a servicing pool could be modified and they must already have been in arrears.
Commercial property owners can get a free consultation at http://www.commercialmodification.com
This action allows borrowers to open discussions with the loan servicer prior to any default in an attempt to work out the loan. Prior to this new rule only a very small number or loans in a servicing pool could be modified and they must already have been in arrears.
Commercial property owners can get a free consultation at http://www.commercialmodification.com
Monday, September 14, 2009
Banking on Geithner
Last week I went to went to Washington DC to participate in the CNBC Town-hall meeting with Treasury Secretary Tim Geithner. I had some tough questions for him regarding the treasury departments stance on modification of mortgages that have been packaged into commercial mortgage backed securities (CMBS). At issue are the IRS rules that prohibit modification of these commercial loans. The problem is that real estate mortgage investment conduits (REMIC) are not allowed to acquire new loans after the formation of the REMIC. A loan modification is considered a new loan if if it is adjusted beyond 1/4 of a point or more than 3 years.
The Treasury did ask the public for help in formulating guidance on the issue back in 2007 (http://www.irs.gov/pub/irs-drop/n-07-17.pdf) and Geithner was questioned by congress but the Treasury has yet to issue any guidance on the subject.
Unfortunately, the CNBC Town-hall meeting was too short for me to get to ask the Secretary the questions I had prepared and instead the meeting dealt with broader issues. The meeting can be seen below.
The Treasury did ask the public for help in formulating guidance on the issue back in 2007 (http://www.irs.gov/pub/irs-drop/n-07-17.pdf) and Geithner was questioned by congress but the Treasury has yet to issue any guidance on the subject.
Unfortunately, the CNBC Town-hall meeting was too short for me to get to ask the Secretary the questions I had prepared and instead the meeting dealt with broader issues. The meeting can be seen below.
Wednesday, September 2, 2009
FHA - The new subprime hazard
With the FHA replacing the subprime mortgage market with ridiculous underwriting guidelines we are setting ourselves up for the next bailout. Why does the government allow this foolishness? Lending with just 3% down is utter folly and the epitome of stupidity. Add the tax credit for people have not owned a home in 3 years (so-called first time home buyers) and that makes it 100% financing. If the market drops another 10, 20 or 30% do you think these borrowers are going to make the payments? Many won't. Too many to sustain the FHA causing it's ultimate failure.
How to pay the national debt.
With the absence of a government plan to pay off the national debt I put forth my own.
Here are the assumptions.
We owe about $11 trillion
Our debt will grow by $2.3 trllion. per year for 10 years
In 2019 our total debt will be about $33 trillion
With 300 million people thats about $110,000 per person
If we start today and each person pays about $1,166 per month for the next ten years, at the end of ten years our debt will be paid.
I have 5 people in my family and I am the only one who produces an income, so my share is $5830 per month. Of course this is on top of the taxes I already pay. I better get to work...
Here are the assumptions.
We owe about $11 trillion
Our debt will grow by $2.3 trllion. per year for 10 years
In 2019 our total debt will be about $33 trillion
With 300 million people thats about $110,000 per person
If we start today and each person pays about $1,166 per month for the next ten years, at the end of ten years our debt will be paid.
I have 5 people in my family and I am the only one who produces an income, so my share is $5830 per month. Of course this is on top of the taxes I already pay. I better get to work...
Tuesday, September 1, 2009
More Questions For Geithner
Here are some suggestions for questions I will ask Treasury Secretary Timothy Geithner at the CNBC Town hall meeting on Sept 10.
Given the existing public and government debt of over $11,000 bn. almost $40,000 per man woman and child in our country and the planned deficits of the future how will America pay off her debt?
Banks are reporting profits since the stimulus suspended mark-to-market accounting, this allows banks to carry these toxic mortgage assets on their books at unrealistic inflated bubble values. With the overhang of commercial real estate that must be refinanced over the next few years, the chickens are coming home to roost when the properties can not be refinanced due to tightened underwriting criteria and declines in market values. Is the Treasury prepared to bailout these bank, insurance companies and pension funds if they become under capitalized as a result of commercial delinquencies?
Do you support more transparency at the Fed, in particular shedding the light of day on the emergency lending to troubled financial institutions or the audit the Fed bill?
Do you support giving more power to the Fed as a so-called "super- regulator"?
Given the existing public and government debt of over $11,000 bn. almost $40,000 per man woman and child in our country and the planned deficits of the future how will America pay off her debt?
Banks are reporting profits since the stimulus suspended mark-to-market accounting, this allows banks to carry these toxic mortgage assets on their books at unrealistic inflated bubble values. With the overhang of commercial real estate that must be refinanced over the next few years, the chickens are coming home to roost when the properties can not be refinanced due to tightened underwriting criteria and declines in market values. Is the Treasury prepared to bailout these bank, insurance companies and pension funds if they become under capitalized as a result of commercial delinquencies?
Do you support more transparency at the Fed, in particular shedding the light of day on the emergency lending to troubled financial institutions or the audit the Fed bill?
Do you support giving more power to the Fed as a so-called "super- regulator"?
Subscribe to:
Posts (Atom)
Posts
