By definition, Rescue Financing is urgently required to avoid an imminent default! Earlier in the year coronavirus hit New York City hard. This devastating blow resulted in a real estate crisis in NYC that began in March 2020. 

We had the chance to speak with many real estate professionals in the area about how the pandemic has affected their industry. We’ve found valuable insights. Take a look at our Pandemic Rescue Financing Series to learn more.

Investor & Property Owner Issues

  • Hotels, garages, restaurants, bars and substantial retail stores have been hit the hardest.
  • Rents in commercial and residential properties are coming down significantly and will be followed by declines in appraisals and values. 
  • As a result of moratoriums on evictions, and rent not being paid on both commercial and residential spaces, landlords with high LTV (loan to value) on their properties are having difficulties paying their mortgages and real estate taxes. 
  • Investors that took CMBS loans, non-recourse, have no ability to negotiate with their bank. Only the servicers and could eventually face default. 
  • Many investors have been able to get deferrals from their banks, or PPP from the government but this is only a short term solution. 

Bank Issues

  • Banks, like Signature and NYCB, have over $60 billion in commercial loans mostly in NYC. M&T is the largest in the construction space in New York and these stocks have gone down over 30% in the current market value.
  • Banks are currently overwhelmed and trying to cope with the immediate problems and in our opinion there will be a lot of distress and damage going forward. 



The Impact on Building Generational Wealth

In our opinion, the specific investors hit the hardest by this crisis are those building generational wealth with multiple properties and high LTV (loan to value) on their deals. 

Usually, as the properties appreciate they are refinanced so additional properties can be purchased. In the past, if there was a problem the investor could simply refinance a property and use the funds to cure. Currently, if an investor goes to the bank with multiple properties having deep cuts in the rent a Global Cash Flow statement will be required and may find that their once 1.30 DSCR has fallen below 1.10 or worse. DSCR in our opinion is going to be the big issue going forward with the banks. Keep in mind they are all regulated so they have to pay attention to the rules of the game. 

Additionally, the banks will require new appraisals, request actual checks to show rents being paid on time and do their due diligence.  



Potential Default

No one wants to face default – there are other options such as forbearance, loan modification, repayment plans etc. 

Also they have to consider if you have cancellation of debt that was forgiven or discharged will create a high likelihood that this amount will have tax consequences. Also, if you have a property with no cost basis and are forced to sell, again tax consequences.  

If you’re facing these hardships, we recommend starting early, and you’ll need to speak to your CPA or attorney. 



Solutions to Proactively Avoid Default

  1. Start the process early with your trusted CPA. 

Get updated PFS, Global Cash flows in order, show where the rents are down, liquidity statements to match the PFS, resumes on the ownership.

Prepare for a potential loan on properties using Asset Based Financing where the bank has blinders on the DSCR. 

  1. These few banks (and if necessary private lenders) are interested in the “subject property” only.

    – Yes, they will check that the investors are not in litigation etc.
    – Yes, they will check the tenancy at the property and that the checks are matching current dates and payments.
    – Yes, if the property is good (not restaurants or shaky retailers) we can get a loan estimating 50%-55% if unencumbered and if mortgages are relatively low, they will take out the first mortgage and be in first position.
  2. Our company, The Liquidity Source, acts as trusted advisors and consultants in this space. 

In some cases we can negotiate a deal with the bank for 24 months and let them hold cash in reserve to pay off the mortgage, real estate taxes and expenses if necessary.

We can get the bank a plan over 24 months – hopefully with a vaccine, new tenancy and keeping the DSCR in place. 



Solutions from The Liquidity Source

You need a plan for the banks. If any of this resonates, please reach out to our team at The Liquidity Source.

We can help with consulting and potential bank relationships for bridge loans, potentially up to 36 months, and commercial loans, potentially up to terms of 5 years with 30 year amortization. There are also private lenders available if needed in certain circumstances.

Let us help you get a forbearance agreement of loan.

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