Article Tools

• 

Latest News

More Latest News

Most Popular Articles

• Capmark’s Troubles Highlight Plight of Many CRE Lenders
• Top 25 Brokerages 2009
• Lenders, Investors Square Off
• GE Capital Real Estate

More Popular Articles

Issue Archive

Issue Archive

advertisement

Contact the lender as early as possible before the loan expires, urges Steve Bram, senior director of George Smith Partners, a Los Angeles-based real estate investment and mortgage banking firm. The lender will probably cap leverage on a new loan at 50% to 70% and will want repayment guarantees or other credit enhancements, which take time to arrange.

Leverage of more than 70% is available from a few sources but is scarce and costly, says Steven Kohn, president and principal of Cushman & Wakefield Sonnenblick Goldman in New York, an investment banking arm of Cushman & Wakefield. By the same token, very few lenders will hold loans of more than $50 million on their balance sheet.

Like Bram, Kohn advises borrowers to work with a financial advisor as early as possible to begin lining up the additional equity, such as mezzanine capital, required for today's loans.

“It's important that ownership and their advisors remain flexible in a market like this, because many transactions need to be heavily structured,” says Kohn. “Our job is to structure these transactions to appeal to each group's risk-reward tolerance.”

Commercial real estate brokerages, mortgage bankers and other service providers are forming workout groups to help troubled borrowers avoid default by striking a compromise with their lender.

Even if a default is unavoidable, borrowers should work with an adviser to contain their losses, according to attorney Tom Gryboski, a partner at Atlanta law firm Morris Manning & Martin LLP.

Even non-recourse loans may carry provisions that trigger recourse obligations, making the borrower responsible for the unpaid balance on a mortgage even after the asset has been turned over to the lender. Triggers can include a declaration of bankruptcy by the borrower, or a variety of actions that vary by loan.

Relationships matter

KeyBank Real Estate Capital, a direct lender that provided $21.9 billion in financing for commercial real estate projects in 2007, is helping borrowers to avoid foreclosure on maturing short-term construction and bridge loans, working out terms both parties can live with until the loans can be repaid in full.