Posted on Monday, January 25, 2010
Are commercial borrowers being treated differently as far as work outs and defaults that residential borrower? Example: The partnership that paid a record $5.4 billion for two of New York City's biggest apartment complexes is having money problems. The group led by Tishman Speyer and BlackRock Realty says it wasn't able to make a full $16 million loan payment that was due Friday. The companies say the missed payment won't affect the 25,000 tenants of Stuyvesant Town and Peter Cooper Village in Manhattan. Analysts have been expecting the group to default on the loan for several months.The group bought the complexes in 2006 in the nation's largest residential real estate deal. Since then, the city's housing market has cooled considerably.The partnership says it is trying to restructure. We're starting to put a face on the 10% default rates (verses last year's 5%) we've been repdicted in commercial for a year now.
Yes. But there are valid reasons;
• Average commercial default is much higher dollar/bank has more at risk.
• Most commercial borrower are represented by higher end counsel, more legal issues, longer foreclosures.
• Average bank’s lawyer billing hourly as opposed to low flat fee of residential foreclosure “mills”
• Commercials deals are more complicated; tenants, maintenance, construction, permits, associations, buyer –deposits, cash flow. Banks don’t want to own; difficult to operate, seller, successor developer liability. Need to mitigate losses.
• Assets are truly illiquid – no money for new buyers to buy if bank takes back)
• Commercial borrowers more likely recoverable, also guarantor
• Many have participations.
• Many held by smaller community banks as opposed to huge banks; Closer to borrowers, life or death to avoid default and bank
• Many actually held in pension funds, REITS, etc.
• Decisions tend to be more purely financial verses home, more emotional
• Most serviced by directly by lender or experienced servicer.