Commercial Loans Blog

Fox Business News Interviews real estate attorney Stephen Meister of Meister Seelig & Fein’s who argues commercial refinance lending and commercial real estate is headed for a bailout, possibly a “TARP 2.0”. Meister states that there is crisis building in the commercial Real Estate market and commercial mortgage refinance. First, a very small market exists to refinance commercial loans. Secondly, the underwriting standards have tightened. Finally, the Obama policies are scaring away investors.

With around $1 trillion coming due in the next four years, there will be plenty of borrowers won’t be able to refinance. With all these loans coming due, Meister believes we are headed for another government bailout.

Who is throwing gasoline on the fire? The Obama Administration, for two reasons:

First, all the government spending is devaluing the dollar. By trashing the dollar, foreign investors, once big mortgage backed security buyers, are not going to invest in the market because they are going to be paid back in devalued dollars.

Second, the mortgage modification program in place is throwing out private contracts by letting first and second mortgages in the residential area by equal, which is trashing private contracts. Meister believes this practice deters private equity capital from investing in the mortgage market.

A bailout only hurts commercial real estate as it devalues the dollar. China and other big foreign investors are only going to shy away from the market if they feel the dollar will further devalue. In addition, capital from American companies is going to flow oversees as they want to buy assets valued in non-dollar currencies.

Now is the time for property owners and banks to execute a plan for commercial loan workout to resolve current loans coming due. The issue for most property owners is not the ability to make the payments rather it is the ability to refinance with the current lender, another lender.

During the looming trillion dollar financial crisis, refinance commercial property will become more difficult if not impossible. During and after a meltdown all the rules change and bank become afraid to lend.

Example: look at the US residential lending market - seems like you have to be a direct descendant of a superhero.

Example: The Japanese banks have stopped lending all together. Period! Don’t even ask.

Best thing to do is to refinance commercial property or get a commercial loan review and restructure your loan ahead of the pending storm. Lower your rate, extend the term or get interest only payments (very attractive to commercial banks) If you get in line behind the other trillion dollars of commercial loans coming due conduits may be gone and commercial mortgage backed securities may be all but shut down completely.