An interesting trend regarding commercial mortgage loans is some banks have started waiving existing prepayment penalties and reducing principal balances, in an effort to encourage borrowers to refinance their commercial debt and move on.
This is not just regarding commercial mortgage loans that are in default as you may have assumed. We are seeing top notch borrowers and top notch deals being asked to refinance, and given substantial principle reductions.
Commercial Mortgage Loans
Why? The bottom line here is that many banks need cash. They have their own liquidity issues to deal with. Banks understand better than anyone, what quality standards are for commercial mortgages that are still closing. They know that the marginal loans (or poor loans), that they really want to get rid of, can’t be refinanced due to the tightened credit standards of other potential funding banks. They are stuck and forced to get rid of their stronger borrowers that can qualify based on the new standards.
So strong borrowers and their commercial mortgage loans are being enticed to refinance with other banks to free up capital. For example, we are currently working with a restaurant owner that has an existing balance of .4 million (he owns 14 locations) and was offered a ,000,000 discount just to “go away.” His loan to value, cash flow, trends, etc are all strong. Another client we’re currently working with is a hotel owner that was recently called out of the blue and told their pre pay, and 0,000 of the existing balance would be waived, if they could pay their existing loan off. This is on an existing balance of ,500,000, still a sizable discount for doing nothing.
Commercial borrowers should take some time to call their existing bank to see if they may be “up” for a substantial discount. It could be the most profitable call they would have made in a long time.