Banks Working With Commercial Real Estate Borrowers Struggling To Meet Loan Payments

By Barbra Murray

Banks hold approximately $270 billion in commercial real estate loans with a scheduled maturity date in 2023, according to research from Trepp, and recent activities suggest these financial institutions are anything but eager to get into the landlord business. As Reuters reported, banks are taking a handful of steps in an attempt to thwart a slew of loan defaults, which is a strong possibility as borrowers struggle to get refinancing amid an environment of high interest rates and stricter borrowing guidelines. Over the last few weeks, signs have emerged that banks are keen to avoid a flood of borrowers defaulting on struggling office buildings. Increasingly, lenders are making the effort to renegotiate loan terms for borrowers who are unprepared to repay loans by providing extensions and incorporating modifications. Banks are also taking other steps to handle defaults, although some moves, such as stepping up subsidized loan offers to investors interested in acquiring defaulted loans, won’t help the original borrower.

The fact that banks are increasing their efforts to prevent loan defaults is cause for a muted sigh of relief. When banks are willing to work with borrowers on solutions that will delay maturities, struggling properties get a window of opportunity to capitalize on any improvements in market fundamentals and begin generating sufficient income again. But for those assets that have little hope of regaining their footing even with some extra time to lease up, renegotiations of bank loans will be few and far between.

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