CIT, Commercial Real Estate and Workouts

Lots of issues to think about these days with respect to loan workouts, CIT's bankruptcy and commercial real estate.

• Last week, I attended the Risk Management Association's panel discussion on loan workouts and restructurings. Panelists included three bankers from the loan workout departments and an attorney who crafts loan workout agreements. The panel's consensus was expect another year of increasing loan defaults in the world of commercial real estate and business loans. Until this workout activity starts to decline, new loan origination activity is not likely to pick up.
• I still cannot figure out the real impact of the CIT bankruptcy. Many borrowers won't be able to find new lenders because CIT's advance rates against inventory was too high and their interest rates were too low relative to current rates. Some borrowers won't find new homes because they won't find another lender with the back-office capabilities of CIT that has traditionally provided.
• The FDIC issued new guidance to commercial banks allowing them to keep commercial real estate loans on their books as "performing" even when the underlying property value has declined. I suppose this is similar to guidance issued for modification of residential real estate loans with the intent to avoid more losses for banks at a time when their balance sheets cannot afford the earning hit.

Need help finding the right lender or telling your story the right way for your California business? Read "Matchmaking for Business Loans" and give me a call!

Tags : CIT Group , CIT , bankruptcy , factoring , accounts receivable loans , commercial real estate , FDIC

$5 Million SBA Loans if Your Name is Joe or Doug

Is the SBA considering increasing its guarantees for the SBA 7a loans program for loan amounts as high as $5 million?

Yes. But I think only if your name is Joe or Doug.

Here's a portion of what President Obama had to say about his thoughts on changes for the SBA ...

"The first thing we need to do is increase the maximum size of various SBA loans. So I am calling on Congress to increase the cap on what's called 7(a) loans to $5 million. These are the loans most frequently handed out by the Small Business Administration to help folks open their doors and buy machinery, equipment, land and buildings. These larger loans will help more small business owners and franchisees grow. We also need to increase the maximum size of what's called 504 loans to $5 million. These are the type of loans that Joe and Doug used to expand this business and create new jobs. And we should also increase the maximum size of microloans that go to start-ups and other smaller businesses."

By the way, the expectation remains that the current SBA loan stimulus money will be exhausted by the end of 2009. Don't wait if you want to take advantage of the current higher SBA guarantees and waiver of SBA loan guarantee fees.

Need help finding the right SBA lender or telling your story the right way for your California business? Read "Matchmaking for Business Loans" and give me a call!

Tags : SBA loans , 7a loan , SBA lender , business loans , equipment loans , credit crunch

Commercial Real Estate - More Pain Ahead

Commercial real estate losses could reach 45 percent next year according to an internal presentation at The Federal Reserve Bank.

As reported in The Wall Street Journal (subscription required), while not the central bank's formal opinion, the presentation by Atlanta Fed real estate expert, K.C. Conway, paints a bleak picture of sliding real estate values, increasing commercial real estate loan defaults and enormous amount of debt that will need to be re-financed in the next few years.

Banks have been slow to take losses on their commercial real estate loan portfolios because their balance sheets still have not recovered from their housing loan related losses. "Extend and pretend" has been the philosophy of some banks whose primary focus is capital preservation and avoiding enforcement actions by regulators.

I have personally seen three bank commercial real estate loans in recent weeks where the banks are in trouble on construction loans and first trust deeds gone sour. I'm working on sale leaseback solutions on two of the three that will necessitate the banks taking a significant discount on the loans. On the third, the value of the property is so low relative to the loan balance, it's not clear where the solution lies.

Need help finding the right lender or telling your story the right way for your California business? Read "Matchmaking for Business Loans" and give me a call!

Tags : commercial real estate loans , commercial real estate , bank failures , real estate bridge loans , private money loans

Do You Really Want to be Banker of the Year?

Less than a year ago, then Chairman and CEO of Bank of America, Ken Lewis, was named Banker of the Year for the second time by American Banker.

Today, The Wall Street Journal (subscription required) announced that Mr. Lewis will retire from Bank of America by year end. This announcement comes just months after Mr. Lewis losing his chairman title over the Merrill Lynch debacle.

Mr. Lewis now joins Kerry Killinger (ousted CEO of Washington Mutual), Ken Thompson (ousted CEO of Wachovia) and Angelo Mozilo (ousted CEO of Countrywide) on the list of former Banker of the Year honorees who thereafter lost their jobs!

Sounds a bit like the Sports Illustrated cover jinx. Do you think any banker in their right mind wants to win next year's award?

Need help finding the right lender or telling your story the right way for your California business? Read "Matchmaking for Business Loans" and give me a call!

Tags : Banker of the Year , American Banker , Ken Lewis , Bank of America

Lack of Refinancing Options for Maturing CMBS Loans

In Two Kinds of Pain for Commercial Real Estate Loans, I wrote that about the shortage of funding to refinance commercial real estate loans as they come due.

In a study for The Wall Street Journal (subscription required), Trepp, which tracks the commercial real-estate market, found that, year-to-date, 528 commercial mortgage backed securities (CMBS) loans valued at $4.7 billion weren't able to refinance when they matured. About 75 percent of these commercial real estate loans were backed by properties that were throwing off more than enough cash to service their debt!

A quick calculation shows that the average loan size for these 528 CMBS loans was approximately $8.9 million. That's not really a large number - this lack of re-financing capacity is likely to impact small and medium sized commercial real estate owners.

At last week's ACG Conference in Los Angeles, I listened to a bank presentation on the state of the debt markets. This bank has tightened their lending criterion for loans including those secured by commercial real estate in part by raising the minimum debt service coverage ratio. If I recall correctly, a 1.35x debt service coverage ratio is the current minimum. By the way, this bank is not lending on commercial real estate without the borrower bringing its entire relationship to the bank.

Need help finding the right lender or telling your story the right way for your California business? Read "Matchmaking for Business Loans" and give me a call!

Tags : commercial real estate loans , commercial real estate , bank failures , real estate bridge loans , private money loans , California

45 Days and Counting!

This afternoon, I dropped by the 2009 M&A Business Conference for the Association of Corporate Growth's Los Angeles chapter. Both the lobby and the Capital Connection room were buzzing with activity.

The Capital Connection room was filled with representatives of over 100 private equity firms with one lender and one commercial real estate sale-leaseback firm thrown in for good measure. The room was packed with deal makers trying to figure out how to get a piece of the $400 billion of equity overhang that everyone keeps talking about!

Spoke to a few of the lenders milling about and each one confirmed the same. If you've got a business loan that needs to be funded by year end, you need to submit the deal to a lender (preferably with a complete due diligence package) by Halloween. After that, there's a reduced likelihood the deal could close by New Year's Eve.

Need help finding the right lender or telling your story the right way for your California business? Read "Matchmaking for Business Loans" and give me a call!

Tags : Association of Corporate Growth Los Angeles , sale leaseback , business loans

Credit Crunch Officially Over

The credit crunch is officially over - at least for one of my clients, an operator of barges and a tugboat.

When referred to me by a Southern California chief financial officer, the borrower had to complete a refinancing of purchase money debt within 25 business days. They were in discussions with six commercial banks, but getting nowhere fast. The bankers were quite interested in the company's deposit potential, but had absolutely no interest in providing the equipment loan.

Within days of being hired, I submitted a completed application and full due diligence package to an SBA lender. A cooperative and well prepared client was a huge plus! We received an approval for an SBA 7a loan within 10 days, subject to an appraisal. The deal closed the last week of August with days to spare before the borrower's deadline.

Why is the credit crunch over for this borrower?

Funding 911 knew the right lender and presented a convincing story on why the SBA lender should expect full and timely repayment of the loan. The borrower can now focus on growing a successful company and not worry about finding money.

A couple of quick notes on the SBA loan market...

According to many sources including this CNN report, SBA loan volume has picked up significantly compared to earlier this year primarily because the secondary markets for SBA loans has healed itself - without much assistance from the government. The ability to quickly replenish their coffers and the attractive premiums once again available for selling these loans have enticed lenders to make more SBA loans.

By the way, as part of the spring stimulus passed by Congress, the SBA was granted over $700 million to increase guarantees and waive borrower paid guarantee fees. Sources say that these funds may be completely utilized by the end of the calendar year. If your business is considering an SBA loan and wants to avoid the stiff guarantee fees, don't wait to apply!

Tags : SBA loans , 7a loan , SBA lender , business loans , equipment loans , credit crunch