Commercial Loan Modification

Is The Next Bubble Here?

As the economy continues to slow down commercial properties are feeling the same downward pressure in pricing as the residential market. Although the market for Commercial Loan Modification has not been as publicized as it's residential counterpart the need is just as urgent and the problem can be more difficult to resolve. Commercial loan modification can encompass any of the following types of properties:

• Rental Properties
• Multi-Family Properties
• Retail Properties
• Manufacturing and Industrial Facilities
• Hospitality Properties
• Office Buildings
• Other Commercial Properties

Small Commercial Loan Modification

Do You Qualify For A Loan Modification Plan?

Although loan modification for smaller commercial mortgages is a great deal easier than working through a large multi lender plan or a property held by a Commercial Mortgage Backed Securities Trust it may hold more challenges than a residential negotiation.

Regardless of the type of property the lender will always focus on one major factor.

Does the cost of foreclosure outweigh the cost of a loan modification?

The lender's decision will be based on their best interests. Your ability to successfully negotiate a plan will depend on many of the same factors as a standard residential loan modification. Some of these factors are:

• Amount Of Equity In The Property
• Past Payment Experience
• Costs Of Foreclosure
• Borrower's Financial Position
• Borrower's Willingness To Retain Property
• Local Market Conditions

Loan Modification + A Business Plan

In addition to these factors many small commercial loan modification plans will depend on the financial condition of the borrower's business. The lender must know that from a business perspective that there is a likelihood of producing enough profit to service the the new payment successfully.

This is the main point of departure from a residential program. Regardless of whether the property in question is a single family rental unit, multi-family apartment building, or retail property, your lender is going to want to see a business plan. The plan should include realistic numbers and a convincing explanation as to why the plan will work.

Be prepared to present a realistic proposal and back it with solid numbers. Consider seeking the services of an accountant, attorney, or experienced loan modification consultant. A negative result could mean the loss of a property and a business. One shot is all you may get.

For smaller commercial loans including Rental, Multi-Family, and Retail Properties the loan modification process is similar to residential mortgage modification. When the process is limited to one lender and one borrower the decision making tree is at it's minimum.

Large Commercial Loan Modification

Modifying a large commercial loan can be as simple as a small loan. It can also be a time consuming task that is better left to accountants, attorneys, and loan modification pros. Some of the determining factors are listed below:

• Type of Borrower (Individual, Corporate, Trust, etc)
• Type of Lender (Bank, CMBS Trust, Insurer, etc.)
• Terms of Lending and Servicing Agreements
• Terms of The Proposed Commercial Loan Modification Plan

In the case of loan modification, the size of a commercial loan is not necessarily the determining factor as to the level of difficulty. If it is a single lender/ single borrower relationship the process may be as simple as a good business plan and a lender that is willing to listen.

On the other hand if the mortgage relationship is a conduit loan from a real estate trust to a corporate borrower the situation will involve a number of professional advisors, a great deal of time, and most likely state and federal tax code.

For larger commercial properties such as large retail, office, and manufacturing facilities the process of commercial loan modification becomes more complicated. Borrowers tend to be large corporations and lenders range from a individual banks to large securitized real estate trusts. In addition there seems to be a number of questions regarding the ability to modify CMBS, Commercial Mortgage Backed Securities without the investment trust incurring major negative tax consequences.

Large real estate trusts known as REMLICs or Real Estate Mortgage Investment Conduits issue a large percentage of this type of commercial loan.The credit crisis and lenders current tendency not to lend could easily precipitate a situation that rivals the current housing crisis.

With almost $400 billion in large commercial loans maturing in the next several months the situation could get worse sooner rather than later.

Nearly $6 trillion dollars in commercial real estate could be affected by this potential bubble. As these loans come due and distress levels increase the demand for Commercial Loan Modification will increase proportionally.