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Commercial Real Estate Official Predicts 'Double Dip' as Commercial Prices Rise

August 2, 2010

As Redlands commercial real estate loan modification lawyers, we were interested to read yet another take on the CRE market by a real estate company officer. Inland Real Estate Group Inc.'s Joe Cosenza, the company's vice chair, believes buying may fall off late in 2010 as prices of properties start rising, BusinessWeek reported July 29. The CRE market is showing some signs of improvement, the article noted. The Moody's Commercial Property Price Index rose by 3.6% in May, though it is still well below its peak in 2007, when the CRE business was booming. Cosenza believes this could actually hurt the market, as lenders react to higher real estate purchase prices and back off on their financial commitments to new buyers.

Cosenza's company and its affiliates have purchased about $3 billion worth of property since 2009, the article said, mostly shopping centers. He predicted that banks will be reluctant to throw a lot of money into commercial real estate lending when prices start to rise. This will cause the lenders to contribute less debt to purchases overall, he said, which could stymie a lot of deals. This backlash could push up capitalization rates, a measure of a property's net operating income divided by its purchase price. Those capitalization rates are at 7% to 7.5% at the moment, the article said, down from 9.5% at the beginning of this year. Cosenza said this was a record high and an opportunity for investors. Real Capital Analytics reported that commercial real estate sales fell by 67% from 2008 to 2009, the article noted, but bounced back by 58% in the first half of 2010 compared to the first half of 2009.

Our Long Beach commercial real estate loan modification attorneys would prefer a recovery in the commercial real estate market (as well as the residential market), but we wouldn't be surprised if he were right. Naturally, the recession has made lenders control their credit carefully, which is part of why commercial investors are having such trouble addressing problems with their existing loans right now. With many commercial properties underwater, CRE borrowers can't refinance loans to renew them, as is typical. And with the recession lowering rents and emptying office suites, retail spaces and hotel rooms, investors have no profits to buoy their properties. As a result, CRE borrowers are stuck with loans they can't pay off and can't refinance, leaving a loan modification as one of the best remaining options. Unfortunately, some lenders have proven reluctant to make meaningful changes to CRE loans, just as they were with residential loans.

Howard Law PC represents CRE borrowers in aggressive negotiations with their lenders on loan modifications. We believe modifying a CRE loan is a better option for everyone than allowing it to go into foreclosure -- and be re-sold on a depressed market -- or even "extending and pretending" without addressing the underlying issue. Our Los Angeles County commercial real estate loan modification lawyers help clients make that case to their lenders, using legal and financial knowledge we've been developing throughout the residential and commercial real estate crises. In most cases, we can achieve this without going to court, through negotiations with lenders. However, when we believe our clients' rights have been violated through a lender's negligence or violation of the law, we can and will file a lawsuit to protect those rights.

If you're a commercial property investor looking for a better solution than "extend and pretend," you should call Howard Law to discuss how we can help. For a free evaluation of your case, contact us through the Internet or call 1-800-872-5925.