Feb 012010

Commercial Loan Modfications and Commercial Short Payoffs

Notes from a conversation with the owner of a commerical bank about commercial loan modifications and commercial short sales.

The owner thought that commercial loan modifications were going to difficult to achieve because of banks are constrained by their lending criteria.

(This meant commercial banks will have difficulty negotiating and approving commercial loan modifications because the value of

The property value is lower as well as the rents and revenues)

He therefore suggested one way to get a commercial loan modification accepted was to offer the lender a sweetner.

That sweetener – participation in the future increase value of the property.

Our suggestions for Upside down commercial real estate owners.

1. Create a loan workout strategy in which analyze potential outcomes and risks.

Compare the benefits and detriments of a commercial loan modification with commercial short sale.

One note about commercial short sales you should consider… in a commercial short sale you may be able to sale the party to an insider.

2. Another strategy some owners are starting to consider is to set up a short payoff strategy in which you source short term financing through a short term lending party such as a hedge fund. Once you secure the financing you or your group offer the bank a cash settlement or short payoff for your current loan.

We would define this techinique as a commercial short payoff coupled with bridge financing which could eventually lead

to a conventional with a much lower principle amount. You may not be able to jump into a new conventional loan

right away because your payment history may need new “seasoning”.

One key to this type of workout is you have to be dealing with the source of the financing not a loan broker who is going to shop your deal. We will discuss more about sourcing bridge financing in the future.

A former law partner of our has set up a hedge fund which has the platform to source these loans. We are currently lining up others.

We will discuss the short payoff strategy with bridge financing in future posts.

If you would like more information about our loan workout strategies. Contact us 800.608.8311 and ask for John McConnin.