The last 5 years have not been kind to office building owners, to say the least. The last decade also hasn’t been nice to shopping mall owners.
The Challenge
What we are starting to encounter are investors that purchased an office building prior to COVID with 5% or 10% vacancy. At that vacancy level and with that rent roll, a $7.5m load made sense, and was easily approved by the bank. The investor took out a commercial real estate mortgage with a 5 year maturity, without thinking about it. Furthermore, the building was located in the suburbs where the C-Suite executives and established tenant business owners live. Restaurants and retail shopping centers also face their own challenges.
Fast forward to today, and the property has 30% vacancy, rents are down, new tenants are hard to come by in the suburbs, because business owners are courting talented young employees who live in the city centers, and aren’t willing to commute that far to the office. This is the landscape the investor finds themselves in now that the loan is mature and due to be refinanced.
This is also a challenging environment for the banks. The last thing they want to do is foreclose, but concurrent to that the lender that did that pre-COVID mortgage no longer has an appetite for the asset class, and isn’t willing to do the refinance. They want the loan and asset off their books, and the investor can feel left high and dry. Local credit unions and regional banks, with vastly fewer loan loss reserves and financial resources than the “big boys,” are pulling back even farther.
One solution is to sell, which is going to present its own series of challenges in the current market. A better solution will often be to hold onto the property at least until the market once again shifts, as it always does, and the market is more favorable to the seller. No one ever said “buy high, sell low” was a good investment strategy.
The Solution
Another solution is to attempt to refinance, while casting a very wide net. A traditional mortgage broker relying on a spreadsheet originally created in Microsoft Office 2003 that lists lenders they’ve worked with before, relying on a weeks long process to get quotes, is ill suited to this environment. Our proprietary platform, by contrast, has over 750 lenders in the same portal. The lenders keep their programs constantly updated because, for them, it’s a semi-passive business development activity. This lets us match borrowers with lenders that have an appetite for their particular transaction. It will take us about 15 minutes to gather the needed information from the property owner (the investor’s assistant or office manager never has all the information needed, we need to speak to the principal), and another 15 minutes to get bids back from that network of hundreds of lenders, with tens of thousands of loan programs between them. Please click here to schedule a free consultation.