Never in recent history has the task of refinancing a commercial property required the effort it does today. The underlying factor is the universal drop in commercial real estate values. What began as a downturn in residential real estate values spread to commercial real estate as the economy worsened, occupancy levels dropped and the collapse of the CMBS market in the third quarter of 2007 thereby eliminating one of the largest players in the debt markets.
The good news is that as of the third quarter of 2010 occupancies have pretty much stabilized across all sectors. Many lenders are back in the practice of lending albeit at different and more stringent terms than just a few years ago and the CMBS market is beginning to shows signs of coming back. Unfortunately, this recent good news doesn't necessarily help existing owners with mortgages maturing in the next year or two. The two main reasons are; lower loan-to-values on mortgages written today vs. pre-2007 and the drop in real estate values. These two factors combined have stripped away much of the initial equity that was present at acquisition. With that said, there are options and there are lenders that understand the underlying value of commercial properties is still present regardless of current appraisals. We work with clients everyday navigating this "new normal" lending environment.
By Rob Schick
