Refinancing CRE - Don’t Wait Until It’s Too Late

Consider the following:

• Don’t expect your loan to roll over easily. "Extend and pretend" is much more easily said than done from a lender's perspective.
• Expect to come up with additional equity to qualify for any extension of maturity. Most lenders simply will not refinance or extend a loan balance without some kind of pay down.
• Expect to pay an extension fee.
  
• Some lenders may demand additional collateral. Consider letters of credit, partnership or LLC interests, personal guaranties, or other real estate collateral even if already encumbered.
• Have a good understanding of what your property’s value is today. Appraisals are of little value in a fast-declining market. Focus on improving cash flow and reduce operating expenses.
• Loan-to-value (LTV) ratios will be less than your original loan. Current maximum LTVs are often between 60% and 65%.
• Underwriting criteria are much more stringent than during the boom. For example, debt service coverage ratio requirements might be no less than 1.3x based on a 10-year fixed-rate loan with a 25-year amortization schedule and an 8% mortgage rate - if you're lucky.
• Engage a professional adviser to help you negotiate a loan modification. Workout professionals know what is currently acceptable to different types of lenders (banks, CMBS special servicers, agencies, life companies) and know how to prepare your proposal in terms the lenders understand. This builds your credibility and enhances your outcome.
  

Don’t cling to the belief that the market will turn around before the time to refinance arrives. Commercial real estate is significantly overbuilt in many markets and cash flows are not likely to rebound quickly as the broader economy begins to improve.

Now is the time to think strategically and act accordingly.