The last big “real estate buying” period for both residential and commercial real estate properties nationwide was around 2007/2008. As real estate investors we should be aware that many of the existing 5 year fixed commercial loans used to finance those real estate investments may be ballooning or becoming all due and payable in 2013.
Ballooning Commercial Mortgages
Upwards of 4,750+ CMBS (Commercial Mortgage Backed Securities) with loan balances near $55 billion may need to be refinanced in 2013 alone. Sadly, a very high percentage of these same potentially ballooning commercial mortgages may not have sufficient income to service the existing mortgage debt.
In addition, there may be an additional 6,300+ non-CMBS commercial mortgage loans (according to Bloomberg Financial News) with balances of almost $79 billion, which may becoming all due and payable in 2013. Which of these properties may qualify for a new commercial loan though today?
Commercial “Short Sales” May Be Increase
In many situations, the existing commercial mortgage debt may currently exceed the conservative market value today in 2013 based upon the income and expenses for the existing properties. Yet, some mortgage lenders or servicing companies may accept partial payoffs almost akin to a residential “Short Sale” by way or either a sale or a refinance so property owners should still try to remain somewhat optimistic in spite of their challenging financial position today.
Most banks still don’t want to foreclose on their properties so they may better realize today that a partial payoff may be much better for them than a foreclosure. My team of underwriters and associates may be able to help our clients negotiate with the existing lender so that they agree to some type of a discounted payoff which may be a “Win / Win” for all parties.
Easier To Refinance Commercial Real Estate Investments
Tragically ironically, it may now be easier to refinance a commercial loan than a residential loan since there are more non-governmental lending entities which are willing to fund or invest in commercial mortgages as opposed to residential mortgages. Had I made this same statement five (5) or six (6) years ago, most people would have laughed at the once perceived absurdity of that statement about commercial loans being easier to fund or close escrow than residential loans.
The most encouraging part of the commercial real estate industry today is that interest rates continue to hover near records low rate ranges (3% to 5%+, in many cases). With lower interest rates today, then borrowers may lock into this historically low rates, and potentially improve their monthly cash flows significantly.
Smart Bet – Invest in Apartments
In 2013, apartment buildings are probably the most popular type of property to fund in many regions due to decreasing vacancy rates, increasing rents, and incredibly low mortgage rates for apartments which may significantly increase the owner’s net monthly cash flow.
Let’s all try to keep an Open Mind (i.e., owners, banks, etc.) so that we may have more options or solutions available in 2013 than in recent years. In challenging times, it may be better to focus on the possible solutions in our lives more so than the obstacles.