Monday, August 18, 2008

Sound advice to borrowers: speak up and act now

This advice came out of the ICSC Florida conference in Orlando today but it applies in Chicago and everywhere.

Silence is deafening, especially if you are in trouble on a dirt loan and then you come to refinance or recap a deal with really bad numbers. Here's some interesting information to consider:

More than $1 trillion worth of U.S. commercial properties will undergo foreclosure in the coming year as owners default on their loans, predicted Stanley Tate, president of North Miami, Fla.–based Tate Enterprises and an advisor to the Federal Reserve. "It's just beginning to start. Those who are heavily leveraged are going to have a very difficult time," Tate said. He pointed out that the FDIC has hired 500 new regulators to help shut down 85 banks within the next 30 days. As more and more subprime borrowers default on loans, "there are very serious problems in the banking industry," he said.

Not all of that foreclosed commercial property will be retail, but Tate expects a significant portion to be small open-air centers tenanted by mom-and-pop shops. Such tenants have been hit hard by inflation and are having trouble keeping up with rent payments, he said. And landlords can no longer count on securing new debt to stay afloat. "In the past few years, every deal was bailed out by more easy money," said John Kozyak, a commercial bankruptcy lawyer with the Coral Gables, Fla.–based firm of Kozyak, Tropin, Throckmorton. "Now, with a lot of loans coming due next year, the easy money has run out."
They say money's to be had, as lenders want to be flexible to avoid write-offs, but you'd better start now. (And make sure you have good counsel helping with the workout and the documents related to it.) Finally, does this mean we going to get another RTC era? Hard to say. I'm still not a sky faller, despite the predictions. If so, however, some people with money in their pockets right now may make fortunes in the next few years.

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