http://www.commercialmodificationusa.com/blog Commercial Loan Modification Law Firm Sat, 06 Feb 2010 02:00:45 +0000 http://wordpress.org/?v=2.9.1 en hourly 1 http://www.commercialmodificationusa.com/blog/commercial-real-estate-record-decline/ http://www.commercialmodificationusa.com/blog/commercial-real-estate-record-decline/#comments Tue, 04 Aug 2009 16:58:43 +0000 Raymond Zolekhian http://blog.commercialmodificationusa.com/?p=22 Another report by Reuters today states that commercial real estate prices dropped a record amount in the second quarter of 2009.  According to a study by the Massachusetts Institute of Technology Center for Real Estate, commercial real estate prices fell 18.1% in the second quarter, off nearly 39% from the markets peak in mid-2007.  Although the new for the most part seemed fairly pessimistic, there was a sign of hope.  The index measuring prices that current commercial property owners would be willing to sell their properties at fell a record 18.5%.  This may be an indication that the market is reaching its bottom.
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Whether or not this potential bottom is a silver lining for lenders is a different question.  If this actually is a bottom, what type of bottom is it?  Is it a V-shaped bottom which would mean a near term increase in property prices?  Or is it a U-shaped bottom which would mean that these highly depressed prices are here to stay for some time?  In the case of a U-shaped bottom, these depressed prices would basically prohibit any refinancing of commercial loans that were made between 2005 and 2007.  The price decline would be too great and the value of most of these properties would be far below the amount of principal owed on their loans.  Without the possibility of refinancing, the number of maturity defaults will increase dramatically leaving banks with the options of foreclosing, selling the note at a discount or negotiating for a loan modification.

]]> http://www.commercialmodificationusa.com/blog/commercial-real-estate-record-decline/feed/ 0 http://www.commercialmodificationusa.com/blog/write-downs-continue/ http://www.commercialmodificationusa.com/blog/write-downs-continue/#comments Mon, 03 Aug 2009 21:26:31 +0000 Raymond Zolekhian http://blog.commercialmodificationusa.com/?p=18 Another day and another article sounding the alarm of the impending collapse of the commercial real estate markets.  Reuters reported today that the worst is yet to come for real estate loans.  Analysts estimate that banks will likely continue to take write-downs on commercial loans for the next two years and the number of such loans in default will continue to rise.  Although the article doesn’t propose or discuss solutions to this problem, there seem to be only a couple of options.  Lenders can begin to foreclose on defaulted properties.  That, however, is costly and forces banks to go into the business of owning real estate which is not what a bank is in the business of doing.  Also, in all likelihood banks will suffer a loss on the sale of the property.  Lenders can also sell notes that they hold at a discount.  This also, however, ensures that the bank will take a loss on their investment but it provides them the comfort of knowing that another bad loan is off their books.  Another option is to negotiate a commercial loan modification.  This allows the bank to save on the cost and expense of a foreclosure and gives them the opportunity to recoup their principal, something not possible when they sell the note.

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