As I drive around town I see lots of commercial buildings that are either empty or with multiple vacancies. There are so many “For Lease” signs in the windows that it is easy to see that the economic melt down has hit the commercial section heard. Homeowners are not the only ones worried about losing their properties these days, landlords and commercial property owners are having many of the same headaches, but on a bigger scale.

As the recession wreaks havoc on businesses around us, they have to downsize, close branches and cut employees. When they do this, they don’t need the office and manufacturing space they once did. Other business simply fail, go out of business or go bankrupt. As they fail and pull back they leave behind vacant and deteriorating office parks and shopping malls. The owners of those commercial properties are in trouble.

Banks report that commercial foreclosures increased dramatically in the last year and they expect it to continue through 2013. Commercial property owners are fighting to increase cash flow and save money so that they can make their mortgage payments. It might be a losing battle if they can’t refinance their loans or get a commercial loan modification.

Tenants are the building owner’s lifeblood. Without the rent they pay he can lose thousands of dollars of income and be unable to make his mortgage payments. In this bad rental market, with all the vacant space around, it could take months or even years to replace the income from lost tenants. Bankers are watching this closely. They know that as the owners lose tenants, it will be increasingly difficult for them to make their mortgage payments. For many of them this will mean defaulting on their loans. When the loans were made seven or eight years ago they were usually short-term with interest rates of 7% to 10%. Everyone expected the property market to continue to increase in value and they were expected to refinance the loans when they came due over the next three years. Now with property values at a 30 to 50% discount from when the loans were made, refinancing is nearly impossible.

Just at the time these commercial property owners need to refinance they are being hit by a double whammy. They are losing tenants along with the income they provide and property values have plummeted to about half what they were when they first secured their loans. With less income and lower property values they are finding themselves upside down with their loans. Many of them owe more than their properties are worth. It is the same problem faced by millions of homeowners around the country.

This new crisis is going to result in a lot more vacant and foreclosed commercial property if it is not solved. About the only thing that will save it is effective commercial loan modification. This will take a lot of negotiating between property owners and the bank, but it’s important that it gets done. There are negotiators whose only business is negotiating these commercial loans. The landlord needs to find a competent commercial mortgage negotiator to help them get the best deal. He needs to have his principle reduced so that is no longer underwater with the loan. That’s the only way he’ll be able to get the refinancing he needs.

To get started the property owner will need to generate a lot of paperwork. Along with the application they will need all of the property’s financial records, rental history, CAP rate reports and a commercial appraisal that can be pretty expensive. If you use one of these professional negotiators there is some good news. It will probably move forward much quicker than residential loan modifications do because everyone knows what they are doing.

Commercial Loan Modifications are coming as balloon mortgages come due between now and 2013. We will tell you all about it at www.PalmDesertForeclosures.org.