CommercialLeads.net - Commercial Mod Situational Analysis
Online, April 1, 2010 (Newswire.com) - While most of the nations focus is on the residential real estate market and jobs there is a huge yet surprisingly quiet storm brewing behind the scenes in the commercial real estate loan market. Commercial Real Estate loans of all types are at a virtual stand still due to the dramatic drop in property values over the past two years. Millions of jobs are at stake and hundreds of banks could go under if this issue is not properly addressed.
There are more than 2 trillion dollars in commercial loans coming due in the next few years. Almost 7 % are delinquent at the present time. Commercial Property values are down 43.7% according to the Wall Street Journal. Vacancies are still increasing across the CRE spectrum. This may represent the perfect storm for major trouble in the CRE space moving forward. Some say it could be the cause of a double dip recession.
Most Commercial Lenders are doing workouts but the process is slow and particularly difficult for those not familiar. Recently (September 2009) the IRS opened the door for CMBS loan mods with Proc 2009-45 which removes the tax liability for investors in such loans and adds "foreseeable" to the language regarding what loan status qualifies. Previously a loan had to be in Default or default had to be Immanent. The FDIC issued a 33 page Policy Statement on Commercial Loan Modifications in October 2009 and the Treasury Department extended TALF until 10/2010. All of this represents signs that the government realizes the danger ahead if maturing and delinquent loans are not resolved soon.
There is legislation pending and a bill that passed the senate banking committee attempting to re-write the rules for commercial finance creating more transparency and more skin in the game for conduit lenders and investors. Assuming this bill became law (long shot) it doesn't go into effect for upwards of two years after passage leaving a big window of time open for more failures, defaults and government takeovers.
Commercial Real Estate Financing is basically split in two pieces. On balance sheet loans or "Portfolio loans" and CMBS or Commercial Backed Securities". Without knowing the landscape of new regulation lenders are sticking to a wait and see attitude that has the industry all but frozen in time waiting for someone to turn the spigot back on.
