COMMERCIAL MODIFICATION

What is a commercial mortgage loan modification?

Commercial Loan Modification is when a business or individual that owns a commercial property such as a strip-mall, shopping center, apartment building or office building agree with the mortgage holder to permanently change the terms of the original note.
Commercial loans come through two channels, portfolio lending and commercial mortgage backed securities (CMBS).

Portfolio lenders are regional banks, insurance companies, pension funds and others that lend money directly to property owners. These loans stay on the lenders books for the life of the loans. Portfolio lenders have pulled out of the market and are actively trying to reduce their exposure to real estate.

CMBS loans are made by mortgage banks that fund the initial transaction and then sell the income stream that the loan produces as investment vehicles on the stock market. Whether or not your commercial real estate loan is currently in default, a loan modification may be an option for you. A restructured loan can give you breathing room to keep your mortgage payment at a rate that makes economic sense. Possible options include a lower interest rate, an interest only payment period, a reduced principal amount or a combination of these modifications. In some instances, we can even negotiate a purchase of your note from the bank at a discount. This allows the bank to save on the cost and expense of a foreclosure while allowing them to maintain a positive relationship with their current borrowers. A successful commercial loan modification is a win-win situation for both borrowers and lenders.

The recent economic downturn has left commercial lenders with an onslaught of loans in default or on the verge of default. This has created opportunity for borrowers facing financial hardships. Lenders have over leveraged themselves and now find it in their best interest to work with borrowers rather than foreclose. With the risk of these defaulting and distressed loans turning into a second wave of foreclosures following the recent residential real estate meltdown, banks are now more open and willing to work with commercial borrowers to avoid bankruptcy and save the bank the expense of going through the foreclosure process.

Often a commercial loan modification can reduce the amount of interest paid by the borrower or even lower the principal amount still owed on the loan. A loan modification is available to both businesses and individuals that own commercial properties such as strip-malls, shopping centers, apartment buildings, office buildings, industrial complexes, gas stations, entitled land, raw land or properties under construction. In a successfully negotiated commercial loan modification, the bank agrees with the borrower to permanently change the terms of the original note thus lowering the monthly payment. This can be accomplished with many strategies including but not limited to an interest rate reduction, changing the loan from principle and interest to interest only, a principle reduction, longer amortization schedule or a combination of these strategies.

Commercial loans are oftentimes structured as portfolio loans since they are generally not securitized like single family residential loans. This structure makes the actual note holder more readily identifiable and approachable permitting a much more effective solution that is beneficial to both parties.

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