Dear Fellow Entrepreneur –
Although you’d be hard-pressed to see it in the papers, online or in the news, there’s a major crisis brewing in commercial real estate.
The next 18 months will be a bloodbath for owners of apartment buildings, office complexes, shopping centers and other commercial property. Here’s what’s happening:
• Rental income is dropping
• Delinquency rates are skyrocketing
• Values are plunging
• Delinquency rates are skyrocketing
• Values are plunging
Bloomberg recently reported that office vacancies are expected by some to approach 19.5% in 2010. That’s one of every five offices empty.
The same article suggested that rent reductions could range from 5-7%.
New leases are being signed at less than 40% of their peak highs.
The credit crisis has driven $138 billion worth of U.S. commercial properties into default, foreclosure or debt restructuring, according to Real Capital Analytics. Commercial foreclosures tripled from the 2nd quarter of 2008 to the 2nd quarter of 2009, according to US News and World Report.
Delinquency rates are pushing 10%. Commercial real estate values have plummeted almost 41% since October 2007, according to Moody’s. One prominent analyst believes that average U.S. office values may fall as much as 50%.
If you’re a commercial real estate investor, you’re probably not sleeping too well at night. But that’s only half the picture.
Don’t Hold Your Breath Waiting for Your
Banker to Ride In On His White Horse
Banker to Ride In On His White Horse
At the same time, almost $500 billion of commercial mortgages will balloon, or mature, each year for the next few years. What happens then? How will you re-mortgage with higher vacancies and lower rent rolls? What if you’re behind a few months on your mortgage payments and taxes?
Don’t count on the banks - they aren’t budging. They’re holding pat. Not lending a dime.
This, despite the fact that they themselves received billions - actually, trillions – of bailout dollars!
They’ve got no problem taking the cash, or so-called “stimulus money” – because no-one’s bothered to ask them what they’re doing with it!
This money is supposed to be for small businesses, the key to economic recovery. Not to pay million dollar-plus bonuses to the same greedy executives who created this mess in the first place!
Where’s YOUR Bailout?
So where’s your stimulus? Where’s your share of the bailout money?
What are you supposed to do if you’re losing tenants right and left? And the ones you’re stuck with come to you every month with a sob story about how they’ll be late with the rent?
That’s if they even come to you at all!
I’ve even heard of a growing cottage industry of lawyers who specialize in negotiating rent reductions on your tenants’ behalf, pocketing a percentage of the savings as a fee.
Look out for these guys! (Disclosure – there’s one of them down the hall from me at the office. He’s a nice guy. Owns commercial property himself. But he’s hiring folks right and left for this new venture – he can’t keep up with the work!)
Have you tried telling your bank what’s going on? Asking them for a break?
Where Are The Bankers Now?
Sure, your banker was more than happy to lend you the money and charge you interest and fees when the getting was good, back in the golden days. Remember when they would practically elbow each other out of the way to make a loan, like a pack of teenage girls at a Jonas Brothers concert, beads of sweat on their noses, foaming at the mouth?
When you didn’t have numbers to show them for your business loan application, they’d look the other way. “Just give us something for our file,” they’d say.
Then, they wrote a predatory loan.
Maybe an Option ARM where the business owner could decide each month how much of a payment to send - even an amount that would not cover the full interest owed.
Or another type of predatory loan – a traditional adjustable rate mortgage. You know, where the rate starts at 7.5% but “resets” in two years to 13%. (Question: Why is the “reset” always higher?)
If you’re struggling now, you’ll understand first-hand what Mark Twain meant when he said, “A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain.”
If you can’t make your payments on your 2 million dollar note, good luck getting them to write down the balance. Or work out an interest rate reduction to give you some breathing room on your payments so your property cash flows again.
Commercial property values and lending is based on cash flow. And you know what’s happening to yours.
It’s raining now.
Revealed At Last: Closely-Guarded Sources of Capital for Commercial Loan Modifications
and Other Business Transactions
The big banks don’t want you to know about this, but there is a source of capital ready, willing and able to loan to owners of distressed commercial real estate. And at surprisingly low rates. These sources are Private Equity funds and a handful of healthy, regional banks who sat out during the subprime craze and, therefore, and did not get burned.
There is a TON of money sitting on the sidelines, pulled out of other more risky investments, parked in bank accounts that pay maybe two per cent, best case.
Money managed by hedge funds, insurance companies, university endowments and other underpublicized, secretive investors.
Their managers are not paid to keep the funds stuck in cash investments, earning a return less than the rate of inflation.
No, these managers are itching to put the money back to work (most of them receive a cut of the profits they earn). Lending on commercial real estate will enable them to make a respectable 6%, 7% or 8% return for their investors.
THIS is the source of your bailout.
How do you access these funds? It’s not easy. The private equity network has operated as a clandestine, almost “shadow” market for decades. Far removed from the highly regulated stock, bond and futures markets.
Confession of a Part-Time Commercial
Mortgage Broker
Mortgage Broker
I know about these worlds. For the first three years of my professional life, I worked as a corporate lawyer for a mid-town Manhattan law firm. I closed initial public offerings, debt and equity financings ranging in size from a few million dollars to more than half a billion dollars. Sometimes single-handedly.
A career path shift took me to an in-house counsel position for a publicly-traded broker-dealer.
I formed a mortgage lender back in 2001 and have been in the lending business since then. I hosted a radio show and wrote a book. Although I was known for residential mortgages, I would dabble in small commercial lending from time to time.
But I have a confession – practically each one of those transactions left me with a bad taste in my mouth.
Why?
Two reasons – see if either sounds familiar to you.
First, I’d have to charge a few thousand dollars up front even before I obtained a commitment. The banks called this an “underwriting fee” or “preliminary commitment fee” or something like that. I called them “junk fees.”
But if I couldn’t obtain a commitment, the bank would pocket the non-refundable fee! Then my client would accuse me of ripping him off, even though I never saw a nickel of that money!
I couldn’t blame him for feeling that way – I would too if I were in his shoes. It smelled like an advance fee scam to me also.
Second, if we were lucky enough to get commitment, I’d hold my breath until closing, since the deal terms could change at the last minute. Even after weeks, or months of excruciating paperwork and information gathering. Sometimes the deal would change on the day of closing!
So I never fell in love with the commercial lending business. Until now.
Is It Worth 23 Minutes of Your Time to
Save Your Commercial Property?
Save Your Commercial Property?
Now, things have changed. A few, smart, courageous private equity investors have stepped up, sensing an opportunity to solve the huge problem in commercial real estate I described in the beginning of this letter. I have access to a small, but growing, list of the legitimate ones.
These sources of capital are savvy and sophisticated. They are cherry picking the best deals for themselves. They turn down far more than they fund.
But they’ve reached out to a select group (less than 50 nation-wide, initially) of industry veterans like myself to garner more deal-flow.
These sources are strictly off-limits to Joe Public. You need at least a 10 year relationship with these institutions for your application to be even looked at.
Eventually, the big banks will recover from their subprime lending sins and get back in the game. But no way will they be as aggressive as before. And it could be 10-15 years before they dip their toes in the water in any meaningful way.
How You Can Restructure Your Commercial
Loan When The Banks Say “No”
Loan When The Banks Say “No”
Here’s how it works. Call or email me to set up a phone appointment. I will ask you basic questions about your property – nothing too complicated. I’m filling out a proprietary but simple one or two page form.
If I can’t tell you right there if I think we have a deal, I’ll send it off to one of my underwriters to analyze. This may take 3-5 days (we’re flooded with applications these days).
Then, if I can give you the “green light,” I’ll create a complete application package by gathering some basic documentation from you – tax returns and related items. Easy stuff.
By the way, if I determine that I cannot help you (I can’t help everyone), I promise that I will not waste your time. Or mine, for that matter. Life’s too short.
No Up-front Fees. Ever.
You’ll notice that at this point, you still have not shelled out a dollar of your hard-earned money. And you won’t owe anything until I hand you a written, signed, bona-fide commitment from a legitimate lender, after a full review of your entire, complete application package.
At that point, you may have to foot the bill for an environmental study, appraisal, or other third-party fee. There’s no risk to you until you receive a commitment on terms acceptable to you.
But you won’t pay me anything until I get the job done for you. I’m paid on performance. If I don’t succeed for my clients, I don’t earn a penny. It’s only fair.
Who Can I Help?
We should chat if you’re interested in:
• Modifying your commercial loan by reducing principal and shaving a few points off your interest rate
• Avoiding foreclosure by catching up on your mortgage, tax or arrearages
• Making improvements to your property but you’re short on cash
• Buying a commercial property – shopping center, apartment building, office building, hotel, medical building, warehouse, etc.
• Refinancing your balloon note even if you don’t show enough income on paper because you’re in a cash business
• Buying out or being bought out by your partners in a deal
• Buying a franchise – finally, you’re your own boss
• Coming up with a down payment from non-real estate sources, such as borrowing against an IRA or other retirement savings account
• Finishing a partially completed construction project and
• Other business funding needs that traditional banks won’t touch
• Avoiding foreclosure by catching up on your mortgage, tax or arrearages
• Making improvements to your property but you’re short on cash
• Buying a commercial property – shopping center, apartment building, office building, hotel, medical building, warehouse, etc.
• Refinancing your balloon note even if you don’t show enough income on paper because you’re in a cash business
• Buying out or being bought out by your partners in a deal
• Buying a franchise – finally, you’re your own boss
• Coming up with a down payment from non-real estate sources, such as borrowing against an IRA or other retirement savings account
• Finishing a partially completed construction project and
• Other business funding needs that traditional banks won’t touch
What To Do Next
Please contact me directly, either through my personal email – andy@andylockwood.com or via my direct phone number, 954.834.3515.
The only “catch” is that I, perhaps like you, am a busy entrepreneur involved with a variety of businesses. So I severely limit the amount of deals that I work on each month. Sometimes it’s as many as seven; other times, only one.
I urge you to contact me today if you’re struggling with your business financing. There is absolutely no downside to contacting me. You’ve got nothing to lose.
Don’t hate yourself for missing out on a potential solution that’s literally at your fingertips.
Sincerely,
P.S. We never charge an up-front fee of any kind. So there’s no risk for you or any of our clients.
P.P.S. It will take less than 25 minutes to get enough information about your property to figure out if I can help you at all. But I’m very limited as to how many transactions I can handle at once. Don’t put this off any longer – contact me today!
P.S. We never charge an up-front fee of any kind. So there’s no risk for you or any of our clients.
P.P.S. It will take less than 25 minutes to get enough information about your property to figure out if I can help you at all. But I’m very limited as to how many transactions I can handle at once. Don’t put this off any longer – contact me today!
Andrew Lockwood, J.D.
1825 Main Street
Weston, Florida 33326
954.834.3515
BizFundsConnection.com
1825 Main Street
Weston, Florida 33326
954.834.3515
BizFundsConnection.com