Reports show that total workout activity (loan modification) for distressed commercial real estate loans during the first half of 2010 reached $29.2 billion, an increase of $14 billion of restructuring activity over the $15.2 billion for the first half 2009.
According to the Real Estate Research Corporation (RERC) the continued stabilization of the real estate market has become increasingly dependent on the re-pricing and deleveraging of property positions. Ira J. Friedman, President for Guardian Solutions, a Florida based commercial loan modification firm, said “We are seeing an increased openness to address the restructuring of CMBS loans by commercial lenders and special servicers. We are now able to quickly move through the process of commercial loan restructuring under the right circumstances.”
Broader issues such as limited gross domestic product growth, continued high unemployment rates, and the likelihood of new federal regulations will force the market to further evaluate the long-standing formulas and assumptions they have traditionally used to price commercial real estate. The special servicers, who handle (CMBS) commercial properties in or facing default, have similarly, had to reevaluate their usual way of transacting with distressed properties that come into their hands.
Major challenges lay ahead for commercial real estate, including the uncertainty related to the use of valuations such as cap rates and comps; the manner in which these metrics are employed, directly affect the outcome of proposed commercial loan restructures and subsequently will influence a market recovery.
“The types of commercial mortgage restructuring we are seeing get approved include both term extensions and mortgage discounted buyouts,” added Friedman.
Because of the changing landscape of commercial real estate and other factors that have evolved in the capital markets over the past several years, the approach to analyzing, investing, managing and restructuring loans for commercial properties will also need to evolve beyond the status quo of previous years.
For commercial loans from 2006-2008, the lax underwriting standards of that time period, lack of amortization, low capitalization rates, a weakened economy and reduced market liquidity may to lead to future higher loss severities.
“Commercial property owners are increasingly experiencing the fallout of this damaged economy and are faced with two options: holding onto a non-performing asset or foreclosure, the solution for many is restructuring,” concluded Friedman.
About Guardian Solutions
Guardian Solutions is the one of nation’s largest commercial loan restructuring companies and is committed to helping commercial property owners save their properties. The company’s knowledgeable mitigators are experienced in a variety of disciplines to provide customized restructuring solutions. For more information, visit www.GuardianSolutions.org
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