the-commercial-investor.com

On December 22nd the Wall Street Journal reported on the record amount of Commercial Real Estate Loans coming due in the next 3 years – a total of $530B – and concerns that the Credit Crunch will make refinancing on this scale impossible. $160B of these loans mature in 2009.

Until this warning, Commercial Loans have been the loan bright spot in the lending world with historically low default rates of 0.96% as measured in November of this year.

And Commercial Property Loans are very different from Residential Property Loans. In Commercial Real Estate, loan terms are usually 3 – 5 – 7 – 10 years. At that point the property must be sold or refinanced. In the past, Commercial Loans were  sliced and diced into Bonds (a process known as “Securitization”) that fall into the category of Commercial Mortgage Backed Securities or CMBS. The CMBS market is now dead and Securitization is completely frozen … anyone who even mentions the term CMBS in any financial institution will  most likely be shot on sight.

With these sources of funding for commercial loans at a complete standstill – how will this massive amount of debt get renewed.? The truth is that NO ONE HAS A FRIGGIN’ CLUE at the moment … which leads to the industry’s “hat in hand” response.

That’s right … they are asking for a Bailout.

A dozen industry trade groups recently sent a letter to Treasury secretary Henry Paulson asking for access to the recently formed $200B fund set up to bail out Student Loans, Car Loans and Credit card debt.

Here is the crux of the problem.

• No one knows whether the credit markets will thaw in time
• No one knows what a “thaw” would look like now that Securitization is not an option
• Bailing out Commercial Real Estate is lower on the political priority list than Bailing Out Homeowners – or the Auto Makers – or Student loans
• Where is all the money going to come from? I mean, even with the presses running 24/7, there is only so much you can print

I certainly don’t have the answers and everyone’s crystal ball is made of dung at this point. Stay Tuned

AND Keep your Owner Financing Negotiation Skills tuned. Just because the lenders aren’t lending, does NOT mean you can’t do a deal in this climate.

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