Thrift Store Gets A 2 Year Extension
In February of this year a retail store owner in Glendale, AZ approached us and asked if we would be able to help save their store. The store provides jobs for battered woman and the profits go to support battered woman's shelters. They were just 2 weeks from the sale date when they engaged Commercial Equity Solutions, LLC to help.
They had become delinquent on their taxes and could not keep up on the payments. Previously, the property owner had attempted to negotiate an extension and got nowhere until they retained Commercial Equity Solutions, LLC.
By demonstrating to the lender that the stores income had stabilized over the last few quarters, the lender agreed to a 2 year extension with interest only payments.
110,000 Square Foot Retail Center Gets Principal Reduction.
This multi-tenant retail property in Minnesota has had a high turnover rate because of constant retail lease renegotiation. The property owners were unable to keep current on the taxes and soon became delinquent on the debt service.
The lender (a CMBS Trust) turned the account over to a special servicer and began foreclosure proceedings on the $9.4 million note. Commercial Equity Solutions, LLC was successful in negotiations with the servicer and they agreed to a pay off of $5.5 million.
With the loan basis on the property reset to its market value, this shopping center will once again cash flow sufficiently to service the new debt.
Thursday, August 12, 2010
Thursday, July 8, 2010
Recent Commercial Modification News
To Fix Sour Property Deals, Lenders 'Extend and Pretend'Wall Street Journal - CarrickMollenkamp - Lingling Wei But the practice is creating uncertainties about the health of both the commercial-property market and some banks. The concern is that rampant modification ... |
Fitch Trading Markets (press release) |
Fitch
Affirms Protective Life Insurance Co.'s CMBS Servicer Ratings
MarketWatch (press release) - Jun 15, 2010
The servicer ratings are based on the methodology
described in Fitch's reports 'US Commercial Mortgage Servicer Rating
Criteria' dated June 19, 2009, ...
The
role of mortgage servicers? - Financial Times
The
role of mortgage servicers? - Financial Times
Fitch
Affirms Halliburton's IDR at 'A-'; Outlook Stable? -
Bradenton Herald
all
29 news articles »
Wednesday, June 9, 2010
BERNANKE ON COMMERCIAL REAL ESTATE
BERNANKE ON COMMERCIAL REAL ESTATE
"We are concerned about it, it clearly is a very weak point in the economy. For many banks, including small and medium-sized banks, it is a problem. We have done a number of things. The Federal Reserve, working with the Treasury, has developed programs to try to restart the commercial mortgage-backed securities markets. Beyond that we have issued guidance to banks on commercial real estate and we're trying to work with them to restructure commercial real estate loans and to find ways to manage in terms of loans, so we're doing the best we can with banks and with the markets. There seems to be, I would say, a few glimmers of hope in this area, some stabilization of prices in some markets, for example, but it does remain a serious concern and we're watching it very carefully."
"We are concerned about it, it clearly is a very weak point in the economy. For many banks, including small and medium-sized banks, it is a problem. We have done a number of things. The Federal Reserve, working with the Treasury, has developed programs to try to restart the commercial mortgage-backed securities markets. Beyond that we have issued guidance to banks on commercial real estate and we're trying to work with them to restructure commercial real estate loans and to find ways to manage in terms of loans, so we're doing the best we can with banks and with the markets. There seems to be, I would say, a few glimmers of hope in this area, some stabilization of prices in some markets, for example, but it does remain a serious concern and we're watching it very carefully."
Sunday, April 4, 2010
Commercial Loan Workouts and Modifications
By Chuck Matheny
Commercial Equity Solutions, LLC
Many commercial borrowers now find themselves in the same condition today that a significant majority of homeowners are in. These commercial borrowers have negative equity or in other words their loan is greater than the value of their property. What is worse is that often the income from the property is not sufficient to pay the monthly debt service and taxes due on the property. This poses a problem when it comes to the end of the term of the loan and a refinance or extension is necessary. It also causes a more immediate problem of how will the commercial borrower pay the monthly loan and tax obligations.
This situation has evolved in most cases for two reasons; 1) the economy has caused many business’s to downsize or disappear thus causing increased vacancies and 2) due to the soft market many tenants have requested rent reductions from their landlord to help keep them in business and landlords have voluntarily granted them as it is most often in their best interest.
This situation leaves many commercial property owners in the tenuous situation of having to”feed the property” or support the monthly loan obligations while the property cannot sustain itself. At some point many owners have to determine if it is worth trying to hang on to their properties. The question that is often asked is do I want to keep spending good money after bad in this particular investment.
The lenders on the flip side are having no choice but to send out default notices if the payments due are past 30 days. If the lender feels that deficiencies are not curable and that the property is not being managed properly many will initiate some kind of foreclosure action and attempt to take the property back or at the very least appoint a receiver.
The good news in this scenario is that commercial lenders are realizing that it is often in their best interest not to aggressively pursue a foreclosure action. Often a better action is to modify on a temporary basis the terms of the note. Sometimes this can be done with the shortfall being forgiven by the lender. Some lenders are under such heavy regulatory pressure that the best solution is simply to move the note off their books through a short sale or short refinance. This can often be done where the lender will realize more than would come from a foreclosure. One key component in determining the best course of action for both lender and borrower is an accurate measure of the current value of the property. This is not an easy task where many of the comparables typically used in a valuation or appraisal are a balance between foreclosure sales and legitimate investor income or capitalization rate based sales. This value becomes a moving target. This is also one reason why appraisal firms are so busy. Values are changing monthly and have a wide range of variance.
If a short refinance is pursued as a course of action since the traditional commercial finance markets are so tight the best alternative is often private financing. This adds a whole new dimension of complexity to the process. Borrowers may even have to give up future equity to accomplish this short refinance with a private lender.
The other significant question that bears weight in the decision of what to do is the level of personal guarantees associated with the particular property. In many commercial properties, ownership involves multiple partners and this further complicates the situation. If some of the partners are not able to make necessary cash calls you can imagine the stress that is created.
Many borrowers would be well advised to get professional help in trying to make these difficult decisions, as there is usually significant equity at risk. Find someone that you feel will take the time to get familiar with the details of your commercial property. Also take the time to find someone that will understand the different values that your property will have in this distressed market. Finally, find a professional that will not be too pushy or adversarial with your lender as they are not obligated to do what the borrower desires to accomplish. Remember we are working for the most part in uncharted waters for both borrower and lender and no one knows how long these distressed market conditions will continue.
Commercial Equity Solutions, LLC
Many commercial borrowers now find themselves in the same condition today that a significant majority of homeowners are in. These commercial borrowers have negative equity or in other words their loan is greater than the value of their property. What is worse is that often the income from the property is not sufficient to pay the monthly debt service and taxes due on the property. This poses a problem when it comes to the end of the term of the loan and a refinance or extension is necessary. It also causes a more immediate problem of how will the commercial borrower pay the monthly loan and tax obligations.
This situation has evolved in most cases for two reasons; 1) the economy has caused many business’s to downsize or disappear thus causing increased vacancies and 2) due to the soft market many tenants have requested rent reductions from their landlord to help keep them in business and landlords have voluntarily granted them as it is most often in their best interest.
This situation leaves many commercial property owners in the tenuous situation of having to”feed the property” or support the monthly loan obligations while the property cannot sustain itself. At some point many owners have to determine if it is worth trying to hang on to their properties. The question that is often asked is do I want to keep spending good money after bad in this particular investment.
The lenders on the flip side are having no choice but to send out default notices if the payments due are past 30 days. If the lender feels that deficiencies are not curable and that the property is not being managed properly many will initiate some kind of foreclosure action and attempt to take the property back or at the very least appoint a receiver.
The good news in this scenario is that commercial lenders are realizing that it is often in their best interest not to aggressively pursue a foreclosure action. Often a better action is to modify on a temporary basis the terms of the note. Sometimes this can be done with the shortfall being forgiven by the lender. Some lenders are under such heavy regulatory pressure that the best solution is simply to move the note off their books through a short sale or short refinance. This can often be done where the lender will realize more than would come from a foreclosure. One key component in determining the best course of action for both lender and borrower is an accurate measure of the current value of the property. This is not an easy task where many of the comparables typically used in a valuation or appraisal are a balance between foreclosure sales and legitimate investor income or capitalization rate based sales. This value becomes a moving target. This is also one reason why appraisal firms are so busy. Values are changing monthly and have a wide range of variance.
If a short refinance is pursued as a course of action since the traditional commercial finance markets are so tight the best alternative is often private financing. This adds a whole new dimension of complexity to the process. Borrowers may even have to give up future equity to accomplish this short refinance with a private lender.
The other significant question that bears weight in the decision of what to do is the level of personal guarantees associated with the particular property. In many commercial properties, ownership involves multiple partners and this further complicates the situation. If some of the partners are not able to make necessary cash calls you can imagine the stress that is created.
Many borrowers would be well advised to get professional help in trying to make these difficult decisions, as there is usually significant equity at risk. Find someone that you feel will take the time to get familiar with the details of your commercial property. Also take the time to find someone that will understand the different values that your property will have in this distressed market. Finally, find a professional that will not be too pushy or adversarial with your lender as they are not obligated to do what the borrower desires to accomplish. Remember we are working for the most part in uncharted waters for both borrower and lender and no one knows how long these distressed market conditions will continue.
Tuesday, March 16, 2010
Commercial Loan Modification Article in National Mortgage Professional Magazine
Please read the following article I wrote for National Mortgage Professional Magazine.
"Commercial Loan Modification"
"Commercial Loan Modification"
Wednesday, March 3, 2010
Record CMBS Delinquencies Reported by Realpoint
Realpoint released their Monthly Delinquency Report. Here are some highlights and charts from their 15 page report.
In January 2010, the delinquent unpaid balance for CMBS increased by another $4.3 billion, up to $45.94 billion from $41.64 billion a month prior. The overall delinquent unpaid balance is up 326% from one-year ago (when only $10.79 billion of delinquent unpaid balance was reported for January 2009), and is now over 20 times the low point of $2.21 billion in March 2007. The distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 25th straight month – up by $7.42 billion (28%) from the previous month and over $27.95 billion (508%) in the past year (up from only $5.51 billion in January 2009). This included a substantial jump in 90+-day delinquency in January 2010.
CMBS Delinquency Amounts
CMBS Delinquency Percentages
Geography
In January 2010, the delinquent unpaid balance for CMBS increased by another $4.3 billion, up to $45.94 billion from $41.64 billion a month prior. The overall delinquent unpaid balance is up 326% from one-year ago (when only $10.79 billion of delinquent unpaid balance was reported for January 2009), and is now over 20 times the low point of $2.21 billion in March 2007. The distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 25th straight month – up by $7.42 billion (28%) from the previous month and over $27.95 billion (508%) in the past year (up from only $5.51 billion in January 2009). This included a substantial jump in 90+-day delinquency in January 2010.
CMBS Delinquency Amounts
All deals seasoned at least a year have a total unpaid balance of $789.07 billion, with $45.94 billion delinquent – a 5.82% rate (up from only 3.15% six months prior).
Geography
- The top three states ranked by delinquency exposure have remained consistent since January 2009, as California, Florida, and Texas collectively accounted for 30% of delinquency through January 2010.
- The 10 largest states by delinquent unpaid balance reflect 57% of CMBS delinquency, while the 10 largest states by overall CMBS exposure reflect 52% of the CMBS universe.
- The state of California remains a major concern at near 13% of CMBS delinquency. By MSA, however, such delinquency is concentrated in the Los Angeles, Riverside-San Bernardino, and Orange County MSAs highlighted below.
- While by state delinquency exposure Florida ranks second, no Florida MSA is found in the Top 10 MSA’s ranked by delinquency exposure (highest being Miami, which ranked 14th in our data).
- Notably, over 10% of total CMBS exposure in the states of Florida, Arizona, Nevada and Michigan are delinquent, with the Phoenix, AZ and Las Vegas, NV MSAs accounting for the top 2 by delinquency exposure at (14% and 14.5% of the MSAs, respectively).
- Credit also appears to be deteriorating further in the Riverside-San Bernardino, CA MSA, as over 11% of the total MSA exposure was reported delinquent through January 2010.
- Texas delinquency is highly concentrated within the Dallas-Fort Worth and Houston MSAs.
- Only one MSA topped 4% of CMBS delinquency in January 2010, consistent with the prior month.
- The 10 largest MSAs by delinquent unpaid balance reflect 30% of CMBS delinquency, while the 10 largest MSAs by overall CMBS exposure reflect 34% of the CMBS universe.
Tuesday, March 2, 2010
Video: How Will The CRE Bubble Be Resolved?
Watch this interesting discussion on the commercial real estate crisis. Tom Flexner, head of real estate at Citigroup, and Richard LeFrak, president of the LeFrak Organization, talk to CNBC.
Billions in opportunistic private money remain on the sidelines as the large rift between buyers and sellers highlights the state of commercial lending.
Billions in opportunistic private money remain on the sidelines as the large rift between buyers and sellers highlights the state of commercial lending.
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