More commercial loan fallout ahead? What does this mean for borrowers and investors?
April 3rd, 2010
From Star-Telegram.com “A February report by the Congressional Oversight Panel paints a bleak picture of commercial real estate…
The report estimated that $1.4 trillion worth of commercial loans will be due between 2010 and 2014, and more than half are considered “underwater,” meaning more is owed than the property is worth. Mortgages on apartments and other multifamily housing make up about a fourth of all commercial loans.”
Read more: http://www.star-telegram.com/2010/04/02/2086404/texas-tenants-may-feel-fallout.html#ixzz0k31EimTH
As a commercial real estate broker and owner of commercial property, I have mixed feelings on the future of commercial real estate as it relates to potential foreclosures and the collateral damage extending to the consumer. It does not take a rocket scientist to understand that owners got greedy, pushed rent rolls to the extreme and under-reported expenses in order to maximize leverage. Irresponsible accounting combined with a horrible economic climate compounded the problem and now there is potentially in excess of $700mm dollars in commerical assets which may be worth less than what is owed in the property’s loan. Not mentioned in the article is another problem. Even on “above water” properties, many lenders are unable or unwilling to renew or refinance existing loans as they mature thereby hanging the borrower out with no resource to pay the existing loan balance and thus creating another foreclosure situation. So, not a pretty picture for many owners and lenders.
Who stands to prosper? Attorneys, accountants and savvy investors with cash.
My real estate attorney friends are reaping a windfall of profitable foreclosure work and will continue to do so for several years, in my opinion. With foreclosures come bankruptcies…and more legal work, more fees, and more padding the attorney’s pockets.
All of the fallout revolves around accounting and therefore requires CPA services and creates more work for accounting firms.
And lastly, the cash laden investor who has a good commercial real estate broker hunting for value add investment property on the brink of foreclosure. With several such pre-foreclosure sales in the works now with my investors, I can tell you from experience that there are some incredible deals to be had in the market today. As things continue to flow back to the lenders, I feel more outstanding “value add” properties will surface. 90% of these deals never make to market as they are scooped up behind the scenes through attorney, lender, broker and investor relationships. These “brother and law” transactions are good for buyers but absolutely destroy any hope of getting a true market price for the properties. This further stifles property values, worsens lender losses and adds salt to the wound of the borrower. Again great news if you are an investor sitting with cash. Another opportunity for investors with cash is to offer funds to the “trapped” borrowers to payoff the existing loans at the cost of exorbitant interest rates and loan fees with short payoffs and low LTV’s. These are last chance lenders who stand to either make a substantial return on the money lended provided the borrower performs…or in the event of default, get the asset back with a very low basis and still be way ahead of the pack.
Make no mistake, there are and will be hundreds of millions of dollars made in this “down” economy. How deep the fallout…and profit, is yet to be seen.
Eric Hughes – Commercial Real Estate Broker
Centermark Commercial Real Estate/713.461.4750 office
National Search site: www.Warehousefinder.NET
Categories: Houston Commercial Real Estate, Market Outlook
