In Commercial Market Recourse Loans Making A Comeback
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The recourse loan is making a comeback in the tighter credit market.
During the past decade of easy money for commercial construction loans, few large developers had to put their own assets at risk. The buildings they put up were more than enough to satisfy the banks and the bond companies that financed the deals.
With a tightening credit market and the steep decline in commercial backed mortgage securities the banks are now demanding a personal guarantee on some commercial loans. This is raising the stakes for the high profile developers who now have to put their vast fortunes on the line for new developments.
Recourse loans, or loans that are backed by personal guarantees, were the norm in commercial lending up to a decade ago. While slowing down the commercial market these loans also make the developers a partner in the risk. As they say, the developer has a dog in the fight. Without the personal guarantee the lender is on the hook for the whole loan and the developer can take greater risks.
During the recent sales frenzy for commercial properties, nonrecourse loans were the norm. Typically, this meant that the developers put up as collateral only the buildings they were purchasing. If they couldn’t pay off the loans, they simply handed the building’s keys to the lender and walked away. The borrowers’ other holdings — including personal assets such as homes and boats — remained intact. The investment banks that originated many of these loans felt comfortable with the arrangement because they typically packaged those loans into commercial-mortgage-backed securities, or CMBS, and sold them as bonds, reducing their own risk if the borrowers couldn’t pay. via WSJ.com.
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Comment by Phillip on 30 June 2008:
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Overall, I was impressed with the caliber of advice and information presented throughout your blog. In particular, this piece about commercial markets and recourse loans struck me as highly relevant to the services provided by Equity Interface. Our site empowers real estate developers and accredited investors with tools to connect and vet mutually beneficial deals. And members can essentially eliminate typical middleman fees in the process.
I’m positive your readers would find the service highly valuable and we’d be grateful if you would be willing to share our info with them. Even sharing the link to our press release would really help us get the word out on our brand new service and features such as our “Investor Profiler Tool.” Feel free to drop us a line at the email below if you have any questions or would like us to reciprocate with any promotion for your site. For now, thanks for your time. Here’s the press release link for sharing with your readers…
https://equityinterface.com/press.php
And a direct link to a short demo video we put together on youtube which we’d love to share as well…
http://www.youtube.com/watch?v=_qMtJXexbh4
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Sincerely, Phil (on behalf of DILEMMA and EquityInterface.com)
–GENERAL CONTACT
info@equityinterface.com
press@equityinterface.com
–PRESS CONTACT
J.C. Christofilis
Founder
DILEMMA (Los Angeles)
A Strategic Marketing, Advertising
and Branded Entertainment Agency
http://www.DilemmaLA.com
jc@DilemmaLA.com
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Fx: 866-379-3199