Recent Commercial Mortgage Modification Consulting Requests

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.