Real Estate Loans

Many industry experts believe an increasing number of commercial real estate loans are headed towards default in the coming months, as mini-perm and interest-only loans that were issued in the past several years are either called or reset.

In a November, 2009 report by Dr. Randall Zisler, CEO of Zisler Capital Partners:

  • A crisis of unprecedented proportions is approaching.  Of the $3 trillion of outstanding mortgage debt, $1.4 trillion is scheduled to mature in four years.  We estimate another $500 billion to $750 billion of unscheduled maturities (i.e., defaults).
  • Whereas excessive and imprudent leverage fed the bubble, deleveraging not only popped the bubble, but, in the process, destroyed record amounts of equity and debt.  Most deals financed with high leverage from 2005 to the present are under water.
  • The equity is gone and the debt, if it trades at all, trades at a deep discount to face value.  Most leveraged equity invested in real estate has evaporated since property prices, if marked to market, have fallen 30% to 50%.

Another view of this is expressed by Shawn Mobley, executive vice-president at real estate firm Grubb & Ellis Co.:

  • Virtually all of “the assets bought between ’05 and ’07 cannot be refinanced today without a significant capital infusion,” saying further that “these buildings need to be recapitalized to get back in the business of being active real estate.”
  • For landlords, the trend means even top-quality office properties are likely to divide themselves into “haves” and “have-nots,” with the latter seeing their vacancy rates worsen because of the lack of financing.
  • Many tenants won’t consider “zombie buildings” because they need landlords’ cash [for tenant improvements]. An “extend and pretend” loan modification will just let the zombie building live longer with deferred maintenance and few tenant improvements.

According to Ben Loughry, managing partner of Integra Realty Resources in Fort Worth and Dallas:

  • There’s a “massive amount of these loans ready to hit market” and “the commercial real estate bubble is continuing to grow.”
  • Moreover, commercial sales are down nationwide by 90 percent, he said.  In addition, the Federal Reserve said during the summer that delinquency rates on commercial loans have doubled from a year ago, to 7 percent.

At Bear Funding, 90% Loan to Value loans are now available.