Video Summary (with direct links)
0:51: CRE and Economic Update
2:00: Commercial loans coming due
3:39: Seller Financing
As we all know, the coronavirus has wreaked havoc on all real estate; however commercial retail real estate has been hit especially hard. If you own a commercial property and you have a loan coming due in the next year, the refinance process will be much more challenging in today’s climate.
Lenders have significantly reduced their capacity to lend, particularly on retail shopping centers. Normally, it might be easy to refinance a shopping center that’s 90-100% occupied. But with uncertainty nowadays about which tenants can pay rent in the coming months, and which tenants will even survive the pandemic, you may have a challenge meeting the debt service coverage ratio you need in order to refinance the loan.
If you are in this position, I would recommend you start the dialog with your lender early. Ask if they are offering extensions for property owners whose loans are coming due. If not, offer to negotiate with them to get an extension. Perhaps you can offer to prepay a few months of interest in exchange to get a 6 month extension. If your lender isn’t willing to cooperate, then one option is to refinance through other lenders including possibly a private lender. These lenders are more flexible on what they will lend on, but will have higher interest rates than a bank or life insurance company. Email me if you would like a referral to private lenders or a mortgage broker.
You are likely going to need additional equity to refinance. This may mean that you have to sell either the property that you need to refinance, or sell another property to help raise capital to put into the property you need to refinance. Although I know that may be a painful thing to consider, I am here to assist you if this is a route you need to take. Regardless of how you approach the situation, the earlier you deal the problem the better the loan terms you are likely to secure, or if you decide to go the sales route, the higher the price you are likely to obtain.
An opportunity that has come about in today’s environment is seller financing. If you do NOT have a loan on your property and have thought about selling, this is an excellent time to offer seller financing on your property. Since it is so difficult for many buyers to get loans nowadays, if you are willing to be the bank, your property will be head and shoulders above the rest and can command a premium in this market. Let me know if this is something that you’re considering for your property.
As always, thank you for reading, and I always enjoy your feedback.