Commercial Short Sales

A reader Juan Escobar wrote in to let me know he got his first commercial short sale deal!

Susan:

I NOW have my first commercial short sale deal.!!!!

A commercial strip retail center, with 4 units, with 3 vacant units, and the deal is with Aurora Bank. You’re the only one I know at this time with their finger on the commercial RE SS market. Thanks!

Juan in Cali.

That is awesome. Guys, it works if you work the process. And that process is laid out for you perfectly in Richard’s (my colleague) system here:

CommercialMortgageRelief.com

The short video presentation will show you how to arrange a discounted commercial note workout!

Commercial assets are valuable to businesses however in these stressful and uncertain economic times with property values sometimes dropping drastically while payments remain the same, such assets can become liabilities. In instances where cash flow is insufficient to meet mortgage and upkeep payments, then a solution must be found quickly. When this happens, commercial properties present a problem to the business and may even be in danger of foreclosure. One of the solutions that is often overlooked in these stressful situations may be a process called commercial short sales.

Bankruptcy or foreclosure are never ideal solutions, since no one wins and the property owner loses their business and ruins their credit and the bank ends up with a property they have little or no interest in owning or maintaining. Commercial properties that are drains on the cash flow of a business endanger it and the credit of the business or individual. A commercial short sale is a sale of the commercial property that disregards the amount owed on a property. It is sold at what the market will bear and sometimes that will be less than what is owed on the property. A commercial short sale requires special arrangements with the bank however; this can be an answer to what might seem an insurmountable problem for the business.

Commercial short sales are not automatically approved, and the property owner will need to provide financial information proving they are unable to make the mortgage payments as well as suggested sale prices. Once this process has been approved by the lender (it takes some time so begin as soon as the situation becomes apparent) then the property owner can move forward and begin market the property for the agreed upon amount. This might seem a little complicated but less so than bankruptcy or foreclosure and infinitely preferable in outcome.

On the other side of the coin, someone must buy that property and commercial short sales can be advantageous to an investor or to a business, which is in search of a property. Such solutions work for all three parties involved. The financial institution may avoid having a commercial property on their hands, which they must sell and maintain. The company owning the property can arrange to keep their business standing, remove that cash flow drain from their books and not declare bankruptcy or have a foreclosure on their records.

The wise investor or business looking for new properties can find remarkable deals in commercial short sales, which they can then utilize for business or resale or even rental. They increase their income, the financial institution gets what could be a foreclosure off their books and the business owner relieves himself or herself of a debt. This is truly one of the all sides win situations.

In stressful economic times with rampant unemployment, reduced consumer incomes and hence reduced cash outlays there are rarely ideal solutions to economic hardships. An exception to this might be considered commercial short sales, where everyone involved can benefit and financial disaster, which seemed certain could be averted.

During periods of National financial hardship or other contributing factors, a company may slowly lose net worth. Often, the loss can be so great over time that the company finds itself “upside-down,” or, worth less than it actually has invested in its particular service. The physical property of a company, both the land and building out of which it is run, can therefore be in jeopardy of foreclosure by the lender if something is not done to stop the financial hemorrhaging.

When a commercial property finds itself in this position, a wise consideration is that of short selling, or selling the property and land to another buyer at the current market rate without regard for the amount still owed to the lender by the original owner. The lender, of course, needs to agree to these terms of sale in order for the transaction to take place.

In order to persuade a lender to agree to terms such as these, one needs to follow a certain procedure. First, the commercial property owner will determine the current market value of the property in question by talking with a real estate professional. If the discrepancy between the market value and the total yet due is great, or if the circumstances are otherwise complicated due to the owner’s unfamiliarity with the process of short-selling the commercial property, the commercial property owner will then decide if seeking the advice of a loss mitigation specialist is in order. Such specialists are not only helpful in assisting with negotiations with the lender, but also in finding prospective buyers for the property.

One of the most important steps in beginning the short sale process for commercial properties is to first contact the lender and make a proposal. This proposal will ideally include a breakdown of the potential foreclosure costs as they compare with the difference between the short sale amount and the net worth of the property. Other important pieces of documentation to include are estimates of projected improvements needed in order to make the commercial property desirable, as well as a letter of hardship to the lender explaining both the current and prospective financial situation of the company. Having these documents on file with the lender will help secure a speedy decision on their part, and therefore, financial peace of mind on the part of the property owner.

Downshifting financial trends do not have to spell disaster for companies. In many cases, the short sale of commercial properties is the only good way out of a bad situation for everyone involved, and for this reason, is a good option to consider if one is in danger of losing his or her company due to increased financial hardship.

Watch the video to see why I don’t hate short sales anymore!

For multifamily investors what’s one cool thing that’s happening in the markets right now? Many of the homeowners who have lost their home to foreclosure are moving into apartments.

So, we have more people moving into apartments and because there is close to no new capital for apartment construction, there are no new units coming online. That means that vacancy rates will decrease and as a result market rents will increase.

Still, many multifamily properties will still go into foreclosure. Here’s why…

Two things make up the value of a commercial property:

1. The Market also known as Cap Rate
2. Net Cash Flow also known as Net Operating Income

Market Value = Net Operating Income/Cap Rate

We can’t control market forces or the CAP rate but as commercial investors we can control the net operating income by doing things such as decreasing expenses and increasing rents – which is easy when the vacancy rates decrease. It’s as simple as the law of supply and demand.

But what happens if we do a good job of increasing the net operating income but CAP rates deteriorate and begin to affect our market CAP rates? We cold be doing all the right things but the value of tee commercial property could decline simply because the market is declining. And we have no control over that.

That’s the situation many commercial investors find themselves in. They are doing all the right things but the market value of their property has declined and in order to avoid foreclosure the only options are a commercial short sale or commercial loan modification.

Many commercial experts predict that the next tidal wave of foreclosures is coming and it’s going to hit commercial properties hard.

So, as a commercial investor this is a historic opportunity to buy cash-flowing properties pre-foreclosure or short sale to make the deal even better. Plus rates are low so it’s the perfect storm!

As a real estate investor always on the look out for the best deals short sales seem like a no brainer. But what if you’re a commercial investor like me? Is there such a thing as commercial short sales?

The answer is yes.

The residential mortgage meltdown began in late 2007 and many people assumed that a meltdown couldn’t happen with commercial property. But you know what happens when you assume.

Commercial foreclosures are a reality and if you can catch those properties pre-foreclosure just like in residential short sale investing you have a good opportunity to create a short sale or loan work out.

These commercial foreclosures are no longer a secret. IN July, the New Jersey Star Ledger reported that the commercial foreclosure rate in New Jersey alone tripled in the second quarter. Banks filed to foreclose on 413 income-producing properties. 413!

Nationwide the properties that are the best candidates for commercial short sales are income producing properties. Those properties include office building, apartment buildings, shopping centers and industrial sites.

Stay tuned for more info coming on this blog to teach you how to get in on commercial short sales before the bank takes them back.