Commercial Loan Workout Programs – Ideal Fit For Distressed Properties
In troubled economic times, there have been a lot of newsmakers from Wall Street bailouts to home loan modification programs.
However, one troubled market has slipped under the radar for too long: commercial real estate. According to the Wall Street Journal, real estate prices have dropped by over 43% since a 2007 peak. And foreclosure rates continue to rise.
Unlike the housing market, the term “loan modification” has been slow to catch on with the commercial sector. In fact, it seems many commercial property owners don’t even realize they have an option when a property becomes distressed.
The refinance market is dry and with values plummeting, it can seem impossible to get the bank to approve new financing. Many property owners are hearing “no” and simply accepting that as the final answer.
Commercial Debt Restructuring is a Viable Option
When the refinance application comes back denied, that’s not the end of your rope. What it means is you need to pursue other options. A loan modification is basically a way to restructure your commercial debt even when no other financing alternatives prove viable.
Making it work ultimately comes down to whether or not you can show your lender a justifiable reason to work something out. And in this case, “justifiable” is really just another word for “financial.”
After all, this is a business decision that has to make sense for both parties and in the end, it will come down to your ability to afford payments on the property going forward.
For example, if you’re so far upside down that even a modification won’t bring you back in line with a realistic income and expense report, the bank is going to say no.
Negotiating With the Bank
You can either negotiate directly with the bank yourself or utilize a third party. Usually, results are easier to come by with a third party due to expertise and relationships. There are certain things the bank wants to see and knowing how to properly present that is crucial.
Your rent roll and income and expense report will basically tell the story, but there are right and wrong ways to do it.
Granted, hiring a third party means there is some expense involved, but the fees they charge can be quickly recouped by the savings you get with the lower monthly payments.
Ultimately, you have to make the decision that gives you the most comfort and assurance.
By: Jerry Rodgers
About the Author:
Jerry is passionate about the commercial real estate market. You can learn more about commercial loan workout options and get a free consultation with a commercial debt restructuring specialist.