As published in Scotsman Guide's Commercial Edition, May 2012.
Many loans that were made at the height of the market are coming to maturity this year and for the next few years — and many of these properties are already underwater. In 2012 alone, Trepp LLC anticipates $69.9 billion in commercial mortgage-backed securities to mature. Savvy commercial mortgage brokers may spot a growing demand in the market for refinancing or note purchases — either because the property has been foreclosed or because the loan is maturing and has to be rolled over. Bridge loans may provide the right financing for many of these deals.
A thorough understanding of the ins and outs of the bridge-lending process, how to select the right lender and how to determine asset value is crucial to your ability to provide your clients with help and guidance for these deals.
To start, commercial mortgage brokers should be aware which lenders are willing to take out existing debt. These deals may require a bridge lender — as opposed to a hard-money lender — because many of these properties likely still generate cash flow, just not at a level that is sufficient to service existing debt. Lenders typically will buy that debt or notes at a discount, however.
Potential borrowers will need your help to find a lender with the right experience in this area — particularly if they are under time pressure. In many cases of a discounted payoff or a note purchase, a borrower has to negotiate with a new lender while also negotiating with the old lender. This can turn into a catch-22 if your client strikes a deal with the old lender before reaching an agreement with the new lender. The old lender typically will want to make sure there is a new lender in place before proceeding with the deal. That’s where experience in dealing with these situations can help speed the process.
For example, if your client needs $10 million in 30 days for an opportunity to buy out an existing note at 50 cents on the dollar, but the client doesn’t actually have a contract in place with the previous lender because the latter wants to make sure the client has the money in place, you must work through that.
That’s a typical example of what commercial mortgage brokers may encounter in note purchases today — there’s a lot of activity in discounted payoffs. In addition, many loans must be bought out because banks don’t want to be in the business of owning real estate and are looking to divest these assets, even at a significant discount.
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