Commercial property owner deadbeats on the rise

[Kingside]

There is no California law that requires guarantees for commercial loans, but I am involved in a situation where in connection with the negoiation of a commercial work out, the lender is trying to take the position that a guarantee is required by federal regulators as part of a work out under the interagency “delay and pray” commercial workout guidance that came out last October:

http://www.ncua.gov/letters/2010/CU/10-CU-07%20attachment.pdf

That guidance gives some considerable emphasis to consideration of “The prospects for repayment support from any financially responsible guarantors” as a way for commercial lenders to modify without taking a write down on underwater assets.

[investor]

Kingside. Just got off the phone with finance at marcus and millichap. They are still making non-recourse loans without personal guarentees, especially in apartments. There is no difference in california. I don’t know if the % is changing with the impending baloon payments from the peak from 2005 or not. In regards to another blogger who commented that commercial borrowers are wealthy peolpe who should morally pay the loan off, in a perfect world I agree. As I have said though, the history of commercial loans is that a significant number have historically been non-recourse so buyers have come to expect that, with the market values reflecting the increased demand for commercial properties as a result of the less risky loan to the borrower. Back to work I go….

[investor]

Kingside. Just got off the phone with finance at marcus and millichap. They are still making non-recourse loans without personal guarentees, especially in apartments. There is no difference in california. I don’t know if the % is changing with the impending baloon payments from the peak from 2005 or not. In regards to another blogger who commented that commercial borrowers are wealthy peolpe who should morally pay the loan off, in a perfect world I agree. As I have said though, the history of commercial loans is that a significant number have historically been non-recourse so buyers have come to expect that, with the market values reflecting the increased demand for commercial properties as a result of the less risky loan to the borrower. Back to work I go….

[investor]

Kingside. Just got off the phone with finance at marcus and millichap. They are still making non-recourse loans without personal guarentees, especially in apartments. There is no difference in california. I don’t know if the % is changing with the impending baloon payments from the peak from 2005 or not. In regards to another blogger who commented that commercial borrowers are wealthy peolpe who should morally pay the loan off, in a perfect world I agree. As I have said though, the history of commercial loans is that a significant number have historically been non-recourse so buyers have come to expect that, with the market values reflecting the increased demand for commercial properties as a result of the less risky loan to the borrower. Back to work I go….

[investor]

Kingside. Just got off the phone with finance at marcus and millichap. They are still making non-recourse loans without personal guarentees, especially in apartments. There is no difference in california. I don’t know if the % is changing with the impending baloon payments from the peak from 2005 or not. In regards to another blogger who commented that commercial borrowers are wealthy peolpe who should morally pay the loan off, in a perfect world I agree. As I have said though, the history of commercial loans is that a significant number have historically been non-recourse so buyers have come to expect that, with the market values reflecting the increased demand for commercial properties as a result of the less risky loan to the borrower. Back to work I go….

[investor]

Kingside. Just got off the phone with finance at marcus and millichap. They are still making non-recourse loans without personal guarentees, especially in apartments. There is no difference in california. I don’t know if the % is changing with the impending baloon payments from the peak from 2005 or not. In regards to another blogger who commented that commercial borrowers are wealthy peolpe who should morally pay the loan off, in a perfect world I agree. As I have said though, the history of commercial loans is that a significant number have historically been non-recourse so buyers have come to expect that, with the market values reflecting the increased demand for commercial properties as a result of the less risky loan to the borrower. Back to work I go….

[davelj]

I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.

[davelj]

I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.

[davelj]

I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.

[davelj]

I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.

[davelj]

I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.

[investor]

[quote=davelj]I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.[/quote]

I agree. I don’t agree with the way commercial loans tend to be non-recourse, only that that has been the way it has been done for along time. This does raise the values artificially for commercial properties and a new full recourse system would mean a big adjustment in their values initially. I’m not opposed to this, only saying the current bubble that commecial is in is now blowing up and will for the next 3 years or so. This is one reason why i am not in agreement that the economy/housing will be better in the near future.

[investor]

[quote=davelj]I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.[/quote]

I agree. I don’t agree with the way commercial loans tend to be non-recourse, only that that has been the way it has been done for along time. This does raise the values artificially for commercial properties and a new full recourse system would mean a big adjustment in their values initially. I’m not opposed to this, only saying the current bubble that commecial is in is now blowing up and will for the next 3 years or so. This is one reason why i am not in agreement that the economy/housing will be better in the near future.

[investor]

[quote=davelj]I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.[/quote]

I agree. I don’t agree with the way commercial loans tend to be non-recourse, only that that has been the way it has been done for along time. This does raise the values artificially for commercial properties and a new full recourse system would mean a big adjustment in their values initially. I’m not opposed to this, only saying the current bubble that commecial is in is now blowing up and will for the next 3 years or so. This is one reason why i am not in agreement that the economy/housing will be better in the near future.

[investor]

[quote=davelj]I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.[/quote]

I agree. I don’t agree with the way commercial loans tend to be non-recourse, only that that has been the way it has been done for along time. This does raise the values artificially for commercial properties and a new full recourse system would mean a big adjustment in their values initially. I’m not opposed to this, only saying the current bubble that commecial is in is now blowing up and will for the next 3 years or so. This is one reason why i am not in agreement that the economy/housing will be better in the near future.

[Author]

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