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Why Consider a Loan Workout


A perfect storm is developing in the commercial real estate lending world, where a combination of lower NOI due to macro-economic factors, and a frozen commercial lending market have left many, many commercial property owners in trouble and looking for a solution.


The solution could be a commercial loan workout. An expertly crafted Commercial Loan Workout Proposal, professionally presented and negotiated by an office of attorneys and commercial real estate bankers, can be a very effective means to get the lender's attention, and to petition them for a solution that works for both parties. The goal is to create a win-win situation for both the Borrower and the Lender.


So why not just refinance? Simply put, you may not be able to. Below are the stark differences between the commercial lending market pre and post-credit crisis. This may provide insight into why refinancing may not be an option that is available:


Pre-Credit Crunch 2002-2007:

  • 1.15x DCR (or even break-even 1.0x DCR!!) on Multifamily, 1.25x on Commercial
  • 80% LTV Purchase, 75% LTV Rate/Term
  • 75% LTV Cash-out refinance on Commercial and Multifamily
  • 80% Minimum Occupancy
  • Loose underwriting of Borrower, exceptions on net worth or liquidity were typical
  • Almost no geographic/market limitations
  • Underwritten cap rates of 5%-7%

Post Credit-Crunch and Banking Crisis, 2008-???:

  • 1.25x for Multifamily, 1.30-1.35x for commercial
  • 50-65% LTV maximum
  • Underwritten cap rates of 6.5-9.0%, irrespective of appraised value or purchase price
  • 90% minimum running occupancy for three months
  • Severe geographic/market limitations
  • Lenders more prone to pass on the deal than try to make something work


The result? Despite government programs such as TARP, the commercial lending markets remain ice cold! Banks are still more concerned with managing their balance sheet and potential defaults within their commercial loan portfolio than with lending any new money.


See if your loan is eligible for a workout by calling (916) 442 6404 today!


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What the Experts have to say: 10 Things We can Expect from the CRE Loan Sector This Year
1. Nearly $73 billion worth of commercial real estate loans are in some level of financial distress
2. Credit Markets Remain Frozen
3. Slashing Rents, Incentive offerings, Demanding Concessions
4. Empty storefronts, Office buildings and Warehouse Space.
5. The losses from commercial real estate loans could hit $53 billion, or 8.5 percent of their overall loan losses over the next two years.
6. Apartment loans are expected to rise further as unemployment climbs, leaving landlords struggling to fill vacancies and make their mortgage payments.
7. Delinquency rates and defaults on office and retail buildings and hotels have more than doubled in just six months.
8. For apartments and industrial buildings, the delinquency rates have increased more than 80 percent
9. Overall, some $270.5 billion commercial property loans are expected to come due this year alone
10. And it's likely many of these borrowers won't be able to refinance!