subject: Will You Be Able To Refinance Your Commercial Loan [print this page] Have you noticed all of the vacant commercial buildings and offices. They are everywhere I look. These empty properties are a sad reminder of the lingering recession we are in. Most of the attention is devoted to homeowners losing there homes but the same problem is looming for commercial property owners. Their problem is the same as the homeowners but on a much larger scale.
As the recession wreaks havoc on businesses around us, they have to downsize, close branches and cut employees. When they do this, they don't need the office and manufacturing space they once did. Other business simply fail, go out of business or go bankrupt. As they fail and pull back they leave behind vacant and deteriorating office parks and shopping malls. The owners of those commercial properties are in trouble.
Newspapers are reporting that commercial foreclosures have increased dramatically in the past year and that they will continue to increase over the next year. To avoid this, many commercial property owners are scrambling to save money and increase cash flow. They might also need to refinance their loans or get commercial loan modifications.
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.
The combination of lower property values and decreasing tenant income could be a fatal blow for many commercial property owners. On top of that, lending practices are much tighter than they were 10 years ago when these loans were made and they can get even tighter. These tight lending practices are making it very difficult for most commercial property owners to refinance.
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.
