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Bad Loans Dragging Down Commercial Real Estate Market as Well

March 11, 2010

Our Fullerton loan modification attorneys have spent a lot of time representing (and blogging about) loan modifications for individual homeowners in financial trouble. The media has focused much of its attention on this problem as well. Less well noticed but potentially even more damaging, however, are strikingly similar problems in the commercial real estate market. As with the individual housing market, the commercial real estate market is extremely depressed because of inflated or poorly documented loans made at the height of the real estate boom, whose value is now undercut because of the market's crash. Unlike the individual housing market, however, the amounts of money involved tend to measured in multiple millions or even billions of dollars. One real estate researcher told the magazine that he didn't expect a full market recovery until 2020.

BusinessWeek produced an overview of the problem for its November 5 issue last year. The article argued that this bust is different from the usual boom-and-bust cycle, in which developers overbuild, prices fall and the market corrects itself. Rather, it said commercial real estate had many of the same problems as mortgages. These included lenders' willingness to overlook or even enable underqualified borrowers; the lure of easy money through securitization; assumptions that the market would never go down; and fraud by borrowers who were willing to take advantage of the bubble.

As an example, the article cited the loan of $375 million to Timothy Blixseth, owner of the exclusive Yellowstone Club in Montana. In 2005, Credit Suisse approached Blixseth about taking out a loan against the club's value, similar to a HELOC. He didn't want one -- so the bank kept trying, finally striking a deal for a 2% transaction fee. The deal allowed Blixseth to use up to $209 million for personal purposes. Allegations about his and his ex-wife's lavish spending became part of their contentious divorce. Meanwhile, the Yellowstone Club struggled to make ends meet and in 2008 filed for bankruptcy.

As Irvine loan modification lawyers, we believe this problem is not getting its share of attention in the press. Most articles about loan modifications focus on the plights of individual homeowners and the government programs intended to help them. Meanwhile, real estate loans are continuing to fail, with many of the same ill effects as failure in the residential housing market. Foreclosed office buildings, like foreclosed homes, are bad for their communities as well as for the market at large. Because their financing is on a grander scale, they may even be worse for the real estate market, driving down prices and ensuring that credit is very difficult to get. And as with mortgages, the blame for bad commercial real estate loans falls at least partly on lenders whose greed outpaced their common sense.

Howard Law PC is proud to announce that we work with commercial real estate borrowers, as well as homeowners, to negotiate loan modifications. Our Redlands loan modification attorneys have substantial experience in this area of the law, having worked with struggling borrowers from the beginning of the market downturn. We do not expect banks, which have consistently refused to modify loans quickly, to significantly change their behavior when even larger amounts of money are at stake. We have successfully restructured loans for multiple residential clients, including drastic changes to loan types as well as simple lowering of interest rates or expansion of repayment terms. Whenever necessary, we can and will file lawsuits to ensure that our clients' cases are fairly heard.

If you believe you can save your investment with a loan modification, but your lender isn't cooperating, don't hesitate to call Howard Law for help. To set up a free consultation, please call us at 1-800-872-5925 or contact us through our site.