Fewer CRE loans being refinanced, but lenders find other ways to work with borrowers
Executive chair of Herrick and co-chair of Herrick's expansive Real Estate department, Belinda Schwartz, was quoted by The Business Journals in an article discussing how lenders and special servicers are looking beyond refinancing options when it comes to working with borrowers on commercial real estate loans that are set to mature in the coming months and years, even as those loans increasingly are backing properties facing distress.
For some loans on the cusp of maturing, the ability to refinance may require more cash from the borrower, especially as lending standards have tightened.
The article notes, "Belinda said the 'haves and have nots' have emerged as commercial loans mature. That sentiment is being observed among lenders and borrowers alike, as some owners have walked away from underperforming office buildings."
Belinda continues, "There are certain people who have the ability to put capital into certain buildings, but then they’re picking their favorite children and saying, 'Which are the assets where it make sense to put more money into, because it’s going to be worth it to do so?'" she said.
The article continues, "A lot also depends on a property's capital stack and the its backers, Schwartz said. Bank lenders, debt funds and preferred equity players all have different models and potential willingness to take a distressed property back if a borrower defaults. For building owners facing a looming maturity, it's possible to work out a resolution if they have a good relationship with their lender or have a strong reputation in the industry, Schwartz said."
"But the specific environment facing both the commercial real estate and banking world right now hasn't been observed in past cycles, even in severe recessions like the global financial crisis of 2007 to 2009, making it difficult to ascertain what ultimately will happen with the wave of debt coming due soon. What's happening now is only the tip of the iceberg, Schwartz said."
Belinda said, "This is a tough one because I’ve never, ever experienced this set of facts," Schwartz said. "A lot depends on what happens in the bank industry more generally. The political climate is also complicated to navigate: Will the regulators find a way to help? I think there are so many unusual factors. … While my gut says (there's) going to be a lot of pretend and extend, we are seeing a tick up in foreclosures."
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