Commercial Real Estate Property Owners; Buy, Sell or Hold After Covid

The past year has been a very turbulent time for commercial property owners. Many lenders are suspending activity or taking very conservative views on ongoing business leaving some investors in a panic, not knowing what their best path will be forward.

“While some financial institutions have curtailed loans, revised their parameters or removed certain lending programs from their offerings, this should be temporary. But even after this crisis is over, the concern of valuation and risk margin will linger, hindering a full recovery in the industry at least in the short term. Lenders will undoubtably pull back on the aggressive lending practices they were demonstrating before this crisis hit,” states Robert Withers, CREF Expert and President and CEO of M1 Capital Corp.

Withers has been receiving calls for several months from people who are understandably worried about the current financial climate. Their questions center around the availability of funding, the value of the properties they hold, and what they should do if tenants don’t pay their rent. Often, they aren’t sure if they should contact their lenders directly and how to approach them which can be especially critical when dealing with SPEC construction loans and debt workouts.

“Commercial property owners should consider having an advocate who can structure or arrange financing for their properties on their behalf: someone who represents them—not the lenders—and who understands the processes and terms required to negotiate with a commercial lender which is significantly different than a standard residential real estate transaction,” states Withers. He adds, “This advice also applies to larger investors who have ‘over-leveraged’ their portfolios, landlords burdened with vacancies and businesses of any size who need to refinance their loans. A good advocate can counsel clients on the most important factors to elaborate on when applying for a loan, as well as what information it is best not to mention.

Ways to Take Action

For anyone thinking about acquiring a commercial property asset in this environment, Withers recommends the following:

  • Reviewing the credit quality of the subject property’s tenants with your real estate broker.
  • Identifying if the tenants have requested a loan via the CARES Act / American Rescue Plan
  • Ensuring that retail tenants on commercial and mixed-use properties have solid financials and a “make sense” business model, especially in this economic environment
  • Securing any prior property reports including appraisals, environmental and engineering inspections that may be available.
  • Having upfront preliminary discussions with a lending professional to understand exactly how financing parameters have been impacted by the current market including “turn around” time in obtaining a loan.

Withers advises those who decide to purchase a commercial property to obtain the best legal representation with in-depth experience in commercial real estate transactions, and ensure they are available from contract negotiations thru closing.

If you own an investment property and it has become destabilized and you are concerned about the debt, consider the following questions:

  • Who is reviewing the leases and expenses to make sure they are still operable in this environment?
  • Can I ask for a forbearance from my lender?
  • Can I apply for a mortgage modification?

Robert Withers, President and CEO of M1 Capital Corp., is a respected real estate finance professional with a 30-year track record of providing creative solutions for commercial real estate industry clients. M1 Capital Corp has offices in White Plains, New York and Manhattan and specializes in acquisition, refinancing outstanding loans, restructuring current debt and delivering smart, effective solutions through a variety of loan options: commercial, hard money, SBA 504 and 7a programs, as well as SPEC Construction Financing, multifamily and commercial debt workouts.

Withers also authors a popular blog, The Equity Strategist, on the M1 Capital Corp. website, www.mortgage1.com. The blog explores all aspects of the real estate finance industry and he shares his expertise and offers advice to those seeking commercial real estate solutions. He can be reached at 866-990-9559 or info@mortgage1.com