You just have to look around when you are driving around town to see all of the For Lease signs up in the windows of commercial buildings to realize that the economic meltdown has hit the commercial building sector in a hard way. Homeowners are not the only ones worried about losing their properties these days, landlords and commercial property owners are having many of the same headaches, but on a bigger scale. A bad economy has made many companies close branch operations or otherwise consolidate operations and personnel, and many other companies have had to stop doing business altogether due to poor sales and revenue. Many businesses have had to close their doors and declare bankruptcy. It is a virtual epidemic across the country. When businesses close it is not only the business owner that suffers but also their landlord.
Newspapers have reported that commercial foreclosures have increased dramatically in the past year and that they will continue to increase over the next year, even if the economy improves. Many commercial building owners are looking for ways to save money and increase cash flow and they are increasingly looking at commercial refinancing or commercial loan modification.
If a building owner loses a tenant it can mean tens of thousands of dollars in lost revenue. Attracting a new tenant could take months or even years in today’s tough financial situation. Lenders are watching closely as more and more building owners default on their commercial loans. These loans are usually between 7% to 10% interest and made for five to ten year terms, with interest only payments and a large balloon payment due at the end. The main problem with commercial refinancing at the present time is that banks are extremely tight with lending any money right now and are not expected to change for the foreseeable future. When lending requirements are this tight it means that the building owner will find it much more difficult to get the commercial refinancing that he is applying for, even if he has great credit and good equity.
A better way to increase cash flow is to apply for a commercial loan modification instead of commercial refinancing. There are several reputable commercial loan modification companies out there that specialize in negotiating with commercial lenders. This is a highly sophisticated and specialized negotiation process and it is highly recommended that building owners look very carefully at third party negotiators and their experience and credentials before deciding on one.
Once the application is complete, several reports need to be completed including capitalization rates of the building, debt servicing, and a commercial appraisal (which can be very expensive). Building owners will have to be prepared to pay these third party costs directly to the vendors before the loan modification package is submitted. Once the negotiations begin however, the process is much faster and more efficient than a residential modification since the negotiator is normally dealing with a professional manager at the lender, not an inexperienced person.
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