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Commercial Mortgages Show How Bad It Got

By FLOYD NORRIS Published: July 5, 2012

Just five years ago, the commercial real estate market was thriving. The delinquency rate on mortgage loans was at a record low, and the volume of new mortgages being sold to investors was at a record high.

Now the first of the mortgages that were securitized in 2007 have started to come due, and it is becoming clear just how bad many of the loans were. The time when investors were most eager to buy turns out to have been the worst time to do so.

Commercial mortgages — unlike residential ones — are seldom issued for periods of longer than 10 years, and often for as little as five. Many require no principal repayments during that period but call for the entire amount to be repaid in a balloon payment at the end of the loan. So it can be at maturity when the bad news arrives.

“Only 28 percent of the loans from 2007 due to mature in 2012 managed to pay off in full,” said Manus Clancy, the senior managing director at Trepp L.L.C., which monitors the commercial mortgage market.

Other loans in those securitizations were for seven or 10 years, so new waves of losses may arrive in 2014 and again in 2017.

Perhaps no loan that was securitized in 2007 illustrates the craziness of the market at the time better than one for a group of apartment buildings in Manhattan. The 36 apartment houses, principally owned by the Praedium Group and managed by the Pinnacle Group, run by Joel S. Wiener, had produced cash flow of $5.4 million in 2006, but they secured a loan of $204 million, on which annual interest payments of $12.7 million would be required.

How could such a loan be justified? The prospectus said Deutsche Bank made the loan based on forecasts that by 2012 the cash flow would have soared to $18 million a year, as market rents in New York rose rapidly while many tenants in rent-stabilized and rent-controlled apartments moved out. It assumed that the owners’ expenses would barely increase while rents soared.

The way the bank did the math, those apartment buildings were worth $255 million, so the loan was for only 80 percent of market value.

Hello and Good Day;
    Another good day in the real-estate market, or is it?   For some that have Cash and can hold out for the hopefully good days ahead, be it 2 years, 5 years or 10 years.. 

  For others it is a hard road of Foreclosure, Bad Credit, Lost Cash, Feeling like they are a loser - but of course they are not.  They are innocent bystanders in the restructure of our society on every level.

 Before it gets to that point perhaps seeking help with you Jumbo mortgage, be it Residential or Commercial.  If you are Underwater/ Upsidedown in your property Equity - your hands are tied.
   Your choice are to hold on for a market turnaround in the distant future.
   Can you make up $100K, $200K, $400K or more in lost Equity?
   You cannot take an Equity Loan.
   You cannot sell the property - unless you sell at a steep loss.
   Walk away/ claim bankruptcy - a 140 point hit 7 years to your Credit.

  MFG Capital had to foresight to put together a Legal team to help Owners with these problems.  We are ahead of the Curve; Banks and Brokers still don't exactly understand what we are doing.

  MFG Capital is a speciality restructure, bridge loan company.  They work with the Owner to Purchase the Note at a discount from the Bank and Resell the Property back to the Owner at a 2012 Value. The Owner maintins the Deed the whole time.

  We are working to keep Owners in their Property when Banks cooperate with us.  We are against Short-Selling property.

  Contact me for additional information...

Be Well,
frank