Commercial loans are in the hot seat these days. As the real estate problems expand into the commercial loan segment, we are seeing a change in how commercial loans are made.
Accourding to Realpoint Research, delinquencies on commercial loans hit almost $29 billion, that is a $10 billion dollar increase in June alone. This has been led by delinquencies in California commercial loans.
This is a huge increase in delinquent commercial loans year over year, close to 600%, and promises to put an additional damper on new commercial loans being funded. To compound the issue, at the same time of rising delinquencies, vacancies are also increasing, making it more difficult for borrowers to obtain institutional financing for a refinance of their commercial loans. With debt coverage ratios skewed, many find themselves in a situation where there is no take out loan for the existing financing.
One area where commercial loans are still moving is the hard money segment. With the huge downturn in residential real estate, commercial loans are still seen as a "safe" investment by many private investors. With institutional lenders tightening standards, and with commercial properties unable to meet the strict debt coverage ratio guidelines of many banks, hard money commercial loans have become a viable alternative to many borrowers in need of commercial financing.
While hard money lenders typically do not underwrite based on the debt coverage ratio, it is a consideration these days in the tightening lending environment. Many banks will require a 1.25 debt coverage ratio, but a hard money lender may be willing to work with DCR's even slightly below 1, depending on the property type and strength of the borrower.
I specialize in private money financing, and can help property owners find a creative source for their commercial loans. If you are in need of commercial loan financing, and are having problems with institutional lenders, feel free to call or email me to discuss your situation.
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