If you still own your commercial real estate and you have tenants with net operating income to pay your debt service, congratulations. You’ve made it half-way through the downturn.
The second half may be uglier. While it may look like you’re successfully wading through the weeds, when was the last time you checked the terms of your mortgage agreement?
Some owners who think they’re in good shape today, may technically be in default or facing a maturity default. Your debt service coverage ratio may be out of alignment with your mortgage agreement. You may have depleted your reserve accounts below the required amount. Or your property’s value may have declined up to 40% since you originated your debt 3-4 years ago. More on this topic here.
If you haven’t done so yet, read your commercial mortgage agreement. You may find that you are in default, or worse yet, headed toward a deadline that may require you to invest more equity into your building that you don’t have.
Values have declined. Your loan to value ratio may need to be reset when your loan matures. If you don’t have the net operating income to support a higher valuation than today’s market will support, or the willingness to buy down your loan, you may run the risk of a maturity default. Owners are losing their buildings to maturity defaults today.
Look at your mortgage and make preparations to protect your building for when your loan comes due.
Get free weekly email updates of this blog.
About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.
Similar Posts:
- Getting to Cash Flow Positive…Easy as 1, 2, 3? Boston Commercial Real Estate
- Why Commercial Real Estate Investing Is Not a Hammer and Nail Business
- Boston Commercial Real Estate Gains from 2005-2007 Wiped Clear in 2009?
- Proposed, “Simple” Budget Fix Would Bring Commercial Real Estate Market to its Knees
- New Opportunity: Positive Cash Flow Opportunity Appears in North Reading, Ma