Vacancies in apartment buildings, office buildings, multi-tenant buildings, warehouses, and other commercial properties have reached unprecedented levels and many experts fear that a crisis that may even be worse than that in residential housing will soon occur. The market has been affected by both an increase in the supply and a decline in demand as a result of the financial crisis. It had been observed that more than two-thirds of the newly developed commercial space was still vacant as of the middle of 2009.
To make matters worse, many of these commercial real estate loans will soon mature with a balloon payment due at the end of the term. Usually, the property owners will look for refinancing but the financial industry has turned off the supply for such funds. The result could be a wave of foreclosures that would have negative effects on both borrower and lender. Even if the borrower is able to find a lender for the refinancing, much of the equity had been eroded by the decline in market value. As a result, the lender would be requiring a bigger down payment to approve the new loan.
A possible answer to the dilemma is offered by commercial short sales. The bank or lender will agree to the sale of the property for an amount that is less than the outstanding loan balance. In essence, the lender agrees to forgive the deficiency. A loss mitigation consultant will often be hired to aid the borrower in the proceedings, particularly in locating a buyer and in negotiating with the bank.
Tags: commercial loan renegotiation, commercial loan review, commercial short sales