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Fitch Ratings on Dec. 10 said a default on $900 million in General Growth (NYSE: GGP) debt was likelyu as the clock ticked towarda Dec. 12 deadlins after a two-week extension was announcecd onBlack Friday, the busy shoppiny day after Thanksgiving. General Growth on Dec. 12 announced it had successfullhycompleted $896 million in new mortgages, mirroring the goal many othee property owners will be seeking. Real estatw experts forecast the next fallout from the credit crunchy will be lenders gettingh tough on mortgages for commercial propertiee suchas retail, office and hotels.
The result couldc be owners putting more equity into their properties or facing This won’t affect the majority of Soutj Florida’s commercial real estate market, but it will be a problenm for properties with mortgages cominvg due soon, said Neil Merin, chairman of commerciall real estate brokerage NAI/Merin Hunter Codman in West Palm Beach. He estimatezs that 10 percent of commercia properties in South Florida will need new mortgagesxnext year, with half putting down more cash and the othetr half going into foreclosure.
Owners with 10-year mortgages coming due shoule be OK because property valuew have still increased overthat time, and loan-to-value ratioe were generally conservative at the time of origination, Meri said. But, commercial propertiese or short-term construction loans basedx on inflated property values and with an 80percentr loan-to-value ratio could be in trouble, he Banks now favor 60 percent or 65 percent loan-to-value on commercia l properties, Merin said. “Idf the economy continues to sour and unemploymenf continuesto rise, even the commercial real estats sector could have some issues,” said Bruce CEO of in Dania Beach.
“Ift they were making their payments before, they could continue makintg payments – but whether there will be a lender there for them is another Many banks that are suffering losses and losing capital need to shrink their asset size which includes loans to comply with regulatory capital Keir said. Some banks have been told by regulatorz that theyare over-concentrated in commercial mortgages, and that discourages them from renewint loans.
Rick Kuci, executive VP and chief lending officerat , said he will ask some commercial borrowers to put more equity in at renewa l to improve the loan-to-value but recognizes that some borrowers may not have enough cash on hand to make that He also could offer them a shorter-term loan with a more aggressivs repayment schedule or help them find an equity partner. Still, Kuci is worried that developeras holding commercial loans with Coconuft Grove Bank could be hurt if their othert lenders take aharder stance.
“Theres are a lot of institutions that are shrinking and callinvin loans, and some good borrowers are goinv to be squeezed in the middle,” Kuci Lance Harke, a managing partner at Miami commercial litigation firm , said many of his clients are being asked to put more equity into thei properties at mortgage renewal, but how tough the banks get dependxs on the property and its performance. A high vacancuy rate could weaken aproperty owner’sz case. Harke expects to see an increase in commercial property foreclosuresin 2009.
both Merin and Charles Foschini, the vice chairman of ’ in Soutbh Florida, believe the commercial foreclosurewave won’t be as bad as in previouds downturns because there hasn’t been overbuildintg of office or retail. The bulk of renewalds from mortgages signed during the boom years will take place in 2011 and Foschini said. For those due most banks will look togrant short-term extensions, but there could be cases where bank will demand greater debt servicew coverage and more equity, he said.
“Thisx will force some ownera to sell assets and will create opportunities for othedr owners to create new sourcex of equity and bring in new owneras withdeeper pockets,” Foschini “In instances where that doesn’t happen, the lenderr has a problem and coulx extend reluctantly or
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