Going For a Commercial Mortgage Renegotiation Deal When Apartment Vacancies Are High

A commercial mortgage renegotiation deal may be thebank or lender, it may provide some breathing space
way to go when apartment vacancies are on the risefor the borrower. It could mean that the monthly
as a result of an economic downturn andpayments will be deferred for a certain period of time
unemployment is increasing. Owners ofand that the maturity of the financial obligation could be
income-generating properties may find that anpushed back by a few years. On the other hand, it
apartment loan modification could prevent foreclosure.may mean that the interest rate would be decreased
The problem is that many of these properties haveso that the monthly payments would be reduced
been financed by commercial mortgage backedpermanently.
securities (CMBS). Providers of CMBS loans had beenBanks and lenders are usually reluctant in allowing a
too optimistic during the boom years and they hadcommercial mortgage renegotiation because it would
covered as much as 90 percent of the price of aresult in lower monthly income for them. In addition,
property. However, these deals had large balloonCMBS loan mods are difficult to get approved
payments at the end of the term.because the interests of the investors in the securities
With vacancies rising fast, the income sources ofhave to be protected. Nevertheless, unusual times
owners are drying up and negative cash flow meansoften call for unusual measures because a foreclosure
that they are no longer capable of coming up with theis also bad for the lender. Hence, a prudent loan
mortgage payments. Rather than lose the apartmentsworkout could be a way for the business to hold on to
to foreclosure, the owners may try to get athe property that could generate substantial income
commercial loan modification. If this is approved by theonce again when the crisis is finally over.