Commercial Loan Modification

With a projected 700 banks on the FDIC failure watch list many analysts are beginning to wonder how many more banks will fail due to the fact that they are holding non-performing commercial loans. In my role as a commercial loan modification consultant I speak to commercial real estate owners who have seen their occupancy levels drop between 30% and 60% over the last two years. These numbers are devastating to the individual commercial property investor who depends on rents to pay their expenses and mortgage loan. Many commercial property owners are turning to commercial loan modifications to help them weather the storm.

“Commercial real-estate debt is potentially more dangerous to the financial system than debt classes such as credit cards and student loans because of its size.” The Real Estate Roundtable, a trade group, estimates that commercial real estate in the U.S. is worth $6.5 trillion and financed by about $3.1 trillion in debt. Partly because the commercial real-estate debt market is nearly three times as big now as in the early 1990s, potential losses in dollar terms loom larger”(Source: Wall Street Journal.)

In the next 24 months, a staggering eight hundred and eighty five billion dollars of commercial mortgages are coming to term. Unfortunately, only 50 billion dollars are available to lend.  This leaves the prospects for refinancing a distressed property very unlikely.  For commercial property owners and their Banks who are caught in between a rock and a hard place, commercial loan modifications provide a viable alternative for resolving the impending multitude of distressed property scenarios. As a result experienced commercial real estate analysts will be needed to utilize their origination skill sets and provide assistance to investors caught in between the banking credit crunch and the growing irrelevance of capitalization rates (Cap Rates are an indirect measure of how fast an investment will pay for itself).

When renters were plentiful and price per square footage was twice the current market rate, commercial property owners qualified for inexpensive, short term loans, generally fixed for 3, 5 or 10 years. Today, net operating income (rents minus management, maintenance, utilities and vacancy factor of 5%) is dropping to par or below the Debt Service Ratio calculated in the past.  Your approach will be to convince the Bank that because Annual Net Operating Income divided by the depreciated Market Value has diminished capitalization rates, a “hardship” has legitimately presented itself for mitigating the previously underwritten mortgage terms.

The Commercial Loan Modification Process

Many business owners will be looking for a life preserver, or more specifically, an exit strategy. Hence, Commercial Loan Modifications are a viable solution. The commercial mortgage modification company becomes a helpful consultant  for the struggling investor by analyzing all sides of the sinking ship and then increasing the cash flow situation by lowering the mortgage payments.

The process begins with the mortgage professional originating and compiling of supporting financial documentation (typically, Rent Rolls, year to date Balance Sheets, Profit and Loss Statements, Tax returns with all Schedules intact, Mortgage and business bank statements, and an Executive Summary outlining the Hardship.) After the required documents are stacked, a due diligence period of approximately seven days takes place to determine how to structure a case for negotiating with the special assets department of a commercial Bank or private lender.  Contrary to popular belief, Commercial Loan Modifications take less time than residential modifications.  Because the banks are not inundated as they are with residential modifications, the decision maker can be engaged earlier in the game. Generally, sixty days from beginning to end appears to be the approximate time line.

Negotiating with the Bank will inevitably require the legal expertise of a Real Estate Attorney and the processing acumen of an experienced underwriter familiar with analyzing financial statements and tax returns. Therefore, it would be prudent for the Mortgage professional to align themselves with a team of experienced commercial real estate and legal professionals.

There are two main reasons:

Reason number one: The current economic market conditions have generated a huge vacancy factor, leaving many property owners of retail strip centers, apartment buildings, warehouses and offices in a vulnerable state of affairs. They no longer qualify for the strict lending guidelines of commercial finance, whether private equity, portfolio lenders or institutional banks. The main underwriting culprit: DSR escalation. DSR , Debt Service Ratio, generally at 1:1.20, represents that for every dollar that is lent, the lender wants to see a dollar and twenty cents returned. This ratio no longer “pencils” due to the fact that anchor tenants, major retailers, have shut their doors and the current occupants remaining are only willing to pay a discounted rent rate, predominantly at 50 percent of the previous price per square foot originally qualified by the lender.

As a result, part of originating a commercial modification entails analyzing the market ratios, forensic auditing of mortgage documentation, assessing both historical and future value, and ultimately determining an appropriate solution to suture the cash flow bleeding.

Reason number two: In order to negotiate, you have to have bargaining chips.  These chips come in many forms, from gentrifying the property management for augmenting rent rolls, applying for variances on use codes and certifications of completion, or to selling the distressed property or Note to a sideline of investors, whether Joint Venture Capital or Real Estate Investment Trusts. The larger your pool of available exit strategy resources, the more apt the bank will be to let your principle buy time for salvaging the sinking ship. Needless to say, the bank does not want to be left holding the bag at the end of the new negotiated loan term.  Nor are banks or lenders in the business of giving away the house. It is imperative to have all your ducks in a row before presenting your case to a savvy banker or their legal counsel. Adding to the complexity, each bank or lender is governed by different parameters.

CLEAR SKIES AHEAD

Drafting a win/win scenario with the bank, which would entail alleviating their frozen reserves and improving their asset ratios and/or lender portfolios, will not only increase your probability of a successful commercial loan modification, but you will also be fostering a long term relationship with your investor clients who will be inclined to ride out the economic storm with you.

Apartment Vacancies hit Their Highest Point Since 1986

According to Reis Inc., a New York real-estate research firm that tracks vacancies and rents in the top 79 U.S. markets, the vacancy rate reached 7.8% this summer, which is normally a strong period for rentals. And, the rate is expected to rise even further in the fall and winter, when rental demand is weaker, pushing vacancies to the highest levels since Reis started keeping records in 1980.

What is Causing the Increase in Vacancies?

One word: unemployment, which is close to 10%-a 26 year high. It seems that the high jobless rate is leading would-be renters to double-up or move in with family or friends.

How to Profit From High Vacancies

Because apartment building prices are tallied according to the income and expenses of the property many apartment building prices have fallen drastically due to increased vacancies. In many areas of the country apartment building prices have fallen 30% to 40% from their peak. This is probably the best time in the last 30 years to buy an apartment building at a great price. As the economy recovers so will your net income and the value of your investment.

I encourage you to get started right away. The fist step is to educate yourself by ordering
“Buy Your First Apartment Building E-Course”

Inside you will find all of the information, tools, software and knowledge that you need to purchase a profitable apartment building anywhere in the United States. The time to get started is right now. Remember, your E-Course tuition is covered by my full money back guarantee. You have nothing to lose. Enroll Now!

Commercial real estate owners who are considering hiring an attorney to handle their commercial loan modification should investigate the background and experience of the person they hiring so that they know in advance what to expect.

In my experience as a commercial loan modification specialist I have found that many attorneys who advertise themselves as commercial loan modification attorneys actually have very little experience performing successful loan workouts. Unfortunately, as many people know, there is an over supply of attorneys in the United States. This forces many lawyers to follow the latest and hottest trends in order to get new business and survive. You may see the same people who used to do accident and injury work now advertising their services as loss mitigation specialists because it has become such a needed service. For this reason the commercial real estate owner should definitely do their homework and research the actual experience of the person they are hiring.

What You Should Expect from a Commercial Loan Modification Attorney:

1. A Money Back Guarantee: Is your attorney willing to give a complete refund if he or she is unable to successfully modify your commercial mortgage?  Very few commercial loan workout companies are offering a money back guarantee but it is will worth the research to find a company or attorney that is willing to offer a written money back guarantee if they are unable to modify your loan.
2. A Written Plan or Proposal:  Make sure that your commercial loan workout attorney gives you a very detailed written proposal of all of the services that he or she is going to perform on your behalf.  Commercial loan modification can be a complicated process that requires many hours of work and research.
3. Satisfied Clients. Ask your commercial loan modification attorney if they can give you the contact information for any clients that they have successfully helped to modify their commercial loans.  They may not be able to give you any references because of their privacy policy or because of attorney client privilege but it can’t hurt to ask.  An attorney who successfully modified the commercial loans of many clients surely must have one or two who would agree to attest to the experience and results that had with the attorney who helped them.
4. Who Does the Work? Find out if your commercial loan modification attorney will be doing the negotiating and processing him or her self.  Many attorneys are too busy to actually perform the important work themselves and they may be outsourcing your commercial loan modification to a third party.  You may be able to save money and time by cutting out the middleman and going directly to the company that performs the negotiation and works with the bank.
   

What is Obama’s commercial loan modification plan? This plan is only for the residential marketplace. So, what does a Commercial Property owner do?

Commercial Properties, although not as widely publicized as their younger sibling the residential modification,  still represent a very large market place. More and more commercial notes are coming to fruition and need to be refinanced.

Many commercial loans were cast at the time when the economy was in a much better place. And because not even the best analysts could have imagined the bottom, most banks and private investors were able to loosen their requirements for a commercial property owner to secure a loan. By doing this, they were able to charge higher rates and balloons. What none of these lenders ever imagined is that they would be sitting on all this bad paper. And in an effort to control losses are willing to negotiate the loan on their books. What this means for a commercial property owner is the bank or lender in an effort to avoid for closure is now willing to recast a commercial property owners loan in the hopes that this will allow the property owner to continue to make timely payments and in the long run out live this recession.

Commercial property owners need to take advantage of this bad economy by trying to renegotiate the terms of there loan while, as they say “the iron is still hot!” It is always wise for a property owner to seek the help of a commercial loan broker/ firm to do the renegotiating of your loan. With the right help you could be looking at a substantial decrease in the rate of your loan and the monthly payments. Commercial loan modifications are a great way for a struggling commercial property owner to re adjust their current loan and reduce their monthly payment, thus increase their cash flow.

Learn How to Create Winning Executive Summaries for Apartment Building Investing

Join Ted Karsch and Lori McMahon of LJ Commercial Property Services and learn how to create a winning executive summary for your apartment building investment.

The executive summary is one of the most important aspects of a winning commercial loan package but few beginning investors truly understand what should be included and what should be left out.

Lori Mcmahon , a commercial real estate executive and owner of LJ Commercial Property Services has created dozens of successful executive summaries for her clients, resulting in hundred of millions in funded loans.

We are going to walk, step-by-step, through one of Lori’s recent executive summaries that resulted in a Letter of Interest for over 10 million dollars on the purchase of an apartment complex from a private lender.

As private lenders and banks have pulled back the reigns on commercial real estate loans over the past 12 months, having a loan package and executive summary that properly highlights your apartment building investment’s value and potential is absolutely essential.

You will learn:

1) What private money lenders and banks are looking for in an executive summary

2) How to structure the executive summary to highlight your achievements, even if you have no commercial real estate investment experience.

3) Why executive summaries have become so important in the last 6 months.

Register today and mark the date on the calendar. This is aTeleseminar that you have to attend if you are serious about getting your apartment building loan package approved in today’s market.

*This is a FREE Web Seminar and Teleconference!
Register HERE

Title:

Learn How to Create Winning Executive Summaries for Apartment Building Investing

Date:

Thursday, July 30, 2009

Time:

7:00 PM - 8:30 PM EDT

After registering you will receive a confirmation email containing information about joining the Webinar.

System Requirements
PC-based attendees
Required: Windows® 2000, XP Home, XP Pro, 2003 Server, Vista

Macintosh®-based attendees
Required: Mac OS® X 10.4 (Tiger®) or newer

Space is limited.
Reserve your Webinar seat now at:

Hi Ted,

Thank you in advance for taking the time to read this.  My name is DJ and I have been trying to purchase an apartment building for some time now.  I have three questions for you if you don’t mind:

I have been told that I don’t need any credit (the better the DCR, the less the bank will look at me) and this is wrong.  Banks are looking at your credit now the way the economy is.

I have been told I can use hardmoney for the 20% down.  This is true, but there is no bank that will lend me the 80% because the 20% is not my money.  I don’t have any vested interest

Do you know of anyone who is lending private money right now..?  I don’t know of any.  Again, I believe this is true because people don’t want to let go of their liquid capital right now.

If I order your course, tell me how you plan to mitigate the above issues.  I am willing to go down the owner finance route, but these people normally want top dollar for something that is in need of a lot of work.  Please let me know.

Very Respectfully, DJ

Buy an Apartment Building — How to Buy an Apartment Building with Intelligence

DSCR and Apartment Building Investments - What is Debt
Service Coverage Ratio?

As a commercial finance consultant I speak with new apartment
building investors on a daily basis whom respond to one of my
flyers or visit my website. Typically, here is how the
conversation unfolds:

Investor: Hello Ted, my name is “first time apartment building
investor” and I am calling because I was visiting your website and
was interested in the loan program you are offering for
multi-family properties.

Me: Great, tell me about the apartment building you are purchasing.

Investor: Well, I found this great 38 unit apartment building in
Austin, Texas. My realtor told me that the gross income from the
property is around $500,000.00 and the taxes are about $15,000.00.
The asking price is $5,000,000.00. I am willing to put down 20% of
my own money and I need a loan right away because the realtor said
there are other serious buyers looking at the property. What do I
need to get a loan on this building?

Me: Have you figured out what the DSCR for the property?

Investor: The what?

Me. The Debt Service Coverage Ratio is the number that banks look
at to determine if the apartment building will pay for the
property’s annual expenses and mortgage payments. DSCR is figured
by dividing the (NOI) by the annual debt service of the property.

…………………………………………………………..
…………………………..

This is where I gently advise my potential client to perform more
due diligence on the property by obtaining the income and expenses
on the property for the past few years so that we can determine
exactly what the net operating income is.

Here is how the property financials break down:

Gross Rents $500,000

Annual Gross Revenue $500,000

Minus 5% Vacancy Rate $25,000

Actual Gross Income $475,000

Real Estate Taxes $7,500

Insurance $2,500

Maintenance $2,500

Exterminator Service $2,500

Up Keep $2,500

Utilities $2,500

Off Site Management Fee 5% $25,000

Replacement Reserves

$200 Per Unit X 38 Units $7,500

Total Expenses For Operation $52,500

(NOI) Net Operating Income $422,500.00

The net income on this property includes all of the property
expenses except for the monthly debt payments or “debt
service”. The “debt service” is simply the principal and interest
payment on the mortgage paid over a one year period of time.

Loan Amount: $4,000,000

Interest Rate: 7%

30 Year Term

Debt Service = $319,345.20

To figure out the DSCR, divide the NOI ($422,500.00) by the Debt
Service ($319,345.20).

NOI $422,500.00/ Debt Service $319,345.20 = DSCR of 1.32

With a 20% buyer down payment this building has a DSCR of 1.32.
This basically means that the building’s income will cover all of
annual expenses including the loan payments while still showing a
profit. Banks
are eager to lend money on a property like this. A DSCR number of
1.0 would indicate that the building is breaking even and a DSCR
lower than 1.0 means that the building is losing money. Commercial
lenders require that an apartment building have a DSCR of 1.2 or
higher.

Armed with this information, the diligent investor is one step
ahead of the herd. Preparing an accurate loan package is an
essential ingredient to your success as an apartment building
investor and calculating the DSCR early on in the process will save
you a lot of time and headaches.

Order the full course here at
“Buy Your First Apartment Building E-Course”

The Zen monks in Japan have a saying: “if you see the Bhuda in the
road, kill him.” There are a lot of so called “Gurus” or self
proclaimed real estate “Bhudas” in the real estate investment
education business . You have seen their late night infomercials.
These “Gurus” offer you outrageous promises of how easy it is to
get into this business. I am not one of those real estate
celebrities. I am just a normal guy. I don’t drive a Ferrari or
take a helicopter to my Manhattan roof top office to meet with
Donald Trump. And, if I ever become that successful in this
business I probably won’t have time to write these courses anymore.

While designing my course, which is an ongoing education for me
also, I have researched all of the available information about
purchasing, managing, financing and selling apartment buildings.
I also have relied upon my years of experience buying and selling
commercial real estate of all kinds. I have put everything I
learned in an easy to understand course.

Check out what you receive and learn with the full course here:

“Buy Your First Apartment Building E-Course”

My goal is simple. I want to provide you, the beginning apartment
building investor with all of the tools and all of the knowledge
you will need to begin investing in apartment buildings.

I’m not like those other guys. I drive a Pontiac not a Ferarri,. I
don’t have glossy brochures or fancy shmancy websites. What does
any of that have to do with serious real estate investing?

What I do have is REAL and USEFUL information.

If you use my course information correctly, and work hard, I know
you will be successful. If that means buying a sports car –
please, by all means enjoy yourself. Personally, I got involved in
real estate investing to give myself more free time to enjoy life
and not be tied down to a 9 to 5 job.

What I have done is try to separate the junk and hype from the REAL
INFORMATION.

Order the full course here at my website:

“Buy Your First Apartment Building E-Course”

Sincerely,

Ted Karsch
Creator of the “Buy Your First Apartment Building E-Course”

Ted,

My name is Lydia and I found out about you a few weeks ago. I have a question:

Are you available to answer questions/walk me through the process, or is there a charge for that?

Lydia

Hello Lydia,

Yes. I do offer free support.

Sincerely,

Ted Karsch
> Hi there,
>
> I noticed that you are reading my mini courses and that you visited
> my landing page a few times.
>
> Many of the real estate investment “gurus” out there spend a lot of
> time and MONEY building fancy websites with super graphics.
> (One guy even has a video of himself driving a Ferrari.)
>
> I’m not one of those “Gurus”. Frankly, I’m too busy working as a
> commercial finance consultant and investor to care about making my
> web pages pretty. But, I do care about offering the best EDUCATION
> to every one of my students. That’s why I added these bonuses to
> the course:
>
> 1) The Cash Flow Factory: (a $49.95 value)
>
> — Cash Flow Factory SOFTWARE does all of the math for you
> — It figures out Debt Service Coverage Ratio for you
> — Automatically computes your net profits for the next FIVE YEARS
>
>
> 2) The Profit Booster: (a $39.95 value)
>
> — User friendly models to raise rents, cut costs and SUPER CHARGE
> your Net Income
>
>
> 3) The Money Bag: (a $79.95 value)
>
> — Money is everywhere! You just have to know where to look.
> The Money Bag has done the long and painstaking work for you.
> Sit back and relax.
> — Hard Money, Owner Financing, No Money Down, Bank Loans,
> Insurance Company Loans, Cash Back At Closing, Owner Notes
> ….Plus A Lot More.
>
> My E-Course is constantly being improved. Real estate markets are
> changing quickly and the same methods that worked last year probably
> won’t have the same success this year.
>
> I don’t believe in any “magic” systems or formulas. My E-Course
> doesn’t teach them either. Mostly because they don’t work. Over time
> I have figured out that there really is only one formula for success
> in any investment undertaking:
>
> Education + Effort = Success.
>
> My E-Course provides you with all of the information and education that
> you will ever need to locate, buy and manage highly profitable and
> successful apartment building investments. The effort part is up to you.
>
> The Chinese have a saying; “the journey of a thousand miles begins with
> the first step”. I invite you to take a journey with me. One that
> begins with a first class education in apartment building investments
> and ends with a profitable real estate portfolio.
>
> I understand that the freedom of monthly cash flow may seem like an
> unattainable goal in your life right now but my E-Course will show
> you, every step of the way, how to get there.
>
> So, put your doubts behind you. Don’t judge my E-Course by its ugly cover.
> Once inside you may discover yourself on a journey that changes your life.
>
> Begin here:
>“Buy Your First Apartment Building E-Course”
>
> As always, if you decide it’s not for you, I will refund all of
> your money and the education was free.
>
> Sincerely,
>
> Ted Karsch

When does the recent revised edition come out? 1st of the month? I’m going to go ahead and try this program but if the newest edition is coming out in November. I want wait till then.

Have a blessed day!!

David

——————————————————————————–
From: Ted Karsch
To: David
Sent: Monday, October 27, 2008 6:00:24 AM
Subject: RE: Question about your program

Hello David,

All of the information in the course is current and it is also revised every month for accuracy. In addition, the course comes with a 30 day money back guarantee.

Sincerely,

Ted Karsch,

Creator of the “Buy Your First Apartment Building E-Course”

Mr. Karsch, thank you for all the valuable information you share, I am inspired! When I tried to follow the link below, I receive this error message “The page you tried to access does not exist on this server”. Please advise if there is a different link. Thanks, Laura
— Ted Karsch <ted@apartmentbuildinginvestor.com>
wrote:

> Hello New Student,
>
> Many of my mini-course students have been asking me what are the
> realistic investment returns that can be experienced by apartment
> building investors. So I created a special audio lesson titled:
>
> “How to Make a Profit of $115,454.24 on One Apartment Building
> Purchased for $300,000.00″
>
> You can view the free lesson at the following link.
>
>
http://www.ApartmentBuildingInvestor.com/Special_Message3.html
>
> Sincerely,
>
> Ted Karsch
>