From the WSJ:
Many small firms that own commercial property are facing big trouble.
The problem is simple: Banks typically re-evaluate commercial mortgages every five to 10 years. At that point, they can renew the loans, or ask business owners to pay them off.
These days, lenders are a lot less willing to extend loans that don’t seem like good bets—and it’s tough for businesses to look creditworthy after years of slumped sales and exhausted savings. “So many small businesses have lost their reserves during the recession,” says Brent Case, president of Coldwell Banker Commercial Atlantic International Inc., in Charleston, S.C. “They don’t have that chunk of cash that banks want as a buffer.”
That leaves many small-business owners scrambling to find a lender that will cover their loan—or facing the loss of their property through foreclosure.
For an idea of the scope the problem, consider this: Some $276.2 billion of nonresidential commercial-property loans are expected to come due in 2013. That’s higher than any prior year, according to Trepp LLC, a commercial-mortgage research firm in New York.
Many of these loans were made leading up to the financial collapse in 2008, when property values were high and business owners could depend on steady income to repay the loan. In other cases, the loans came due in the depths of the financial crisis, but banks were willing to give businesses extensions—essentially pushing the question of refinancing to a later date. Some analysts estimate as many as 60% of commercial real-estate loans that came due were extended during this period.
Now the extension periods have been coming to an end. Borrowers are again confronting big balloon payments they can’t make—and banks are more willing to foreclose. They’re better capitalized than they’ve been in years and “are in a position to take a hit” on a loan, says Dan Fasulo, managing director of Real Capital Analytics Inc., a commercial real-estate research firm in New York.