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WOJTOWICZ: Relief available for firms with falling real estate values

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Jean Wojtowicz

Q: When I bought my building seven years ago, my bank gave me a $1 million mortgage based on an appraised value of $1.3 million. I have made regular payments, improved the building and run a successful business. We like this location and plan to stay.

Here’s the problem: My building’s latest appraisal came in at $900,000. I was surprised, but my banker seemed not to be. I owe a balance of $800,000 on my loan. This loan had a longer amortization and a shorter term, so it is up for renewal this year. I have never missed a payment and assumed this would not be a problem, but my banker indicated that the loan no longer is within their policy guidelines and that to get it renewed I may have to pay it down by another $80,000. I don’t have that kind of money.

I’m at a loss. What can I do?

A: It won’t soften the blow, but you might want to know that you are not alone. This is a tough problem because much commercial real estate has declined in value for several years through no fault of their owners.

Your banker is right: Most banks will not loan more than 80 percent of the value of commercial property. The balance of your loan is 88.9 percent of your building’s value. It was only 76.9 percent when you took out the loan and started making payments! You may be an excellent bank customer—it sounds as if you are—but the banker sees little room to be flexible. He may have other situations like yours in his portfolio.

Help is available though the U.S. Small Business Jobs Act, signed a few months ago by President Obama. The new law allows your bank to refinance existing real estate and equipment debt through the U.S. Small Business Administration 504 loan program.

The program was previously available only for the acquisition of new/used buildings and equipment. But this recent refinancing crisis has resulted in Congress and the president authorizing the SBA to open up this program to refinance real estate and equipment debt for a limited time.

Lenders offering the SBA 504 program have begun accepting applications for 504 refinancing loans. Eligible companies must be facing balloon payments or maturities before Dec. 31, 2012, and banks can take applications for the refinancing loans through Sept. 30, 2012. You fit comfortably in this schedule.

Borrowers will be able to refinance up to 90 percent of the current appraised property value or 100 percent of the outstanding mortgage, whichever is lower, plus eligible refinancing costs. Existing 504 projects and government-guaranteed loans are not eligible to be refinanced.

This is an opton that was not available until recently. Frankly, it’s a reality check that recognizes the state of the economy. I urge you to contact your banker and suggest he look into this new way to refinance your business mortgage. If your bank backs away for any reason, you should call another banker.•

____


Wojtowicz is president of Indianapolis-based Cambridge Capital Management Corp.

 

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  1. to mention the rest of Molly's experience- she served as Communications Director for the Indianapolis Department of Public Works and also did communications for the state. She's incredibly qualified for this role and has a real love for Indianapolis and Indiana. Best of luck to her!

  2. Shall we not demand the same scrutiny for law schools, med schools, heaven forbid, business schools, etc.? How many law school grads are servers? How many business start ups fail and how many business grads get low paying jobs because there are so few high paying positions available? Why does our legislature continue to demean public schools and give taxpayer dollars to charters and private schools, ($171 million last year), rather than investing in our community schools? We are on a course of disaster regarding our public school attitudes unless we change our thinking in a short time.

  3. I agree with the other reader's comment about the chunky tomato soup. I found myself wanting a breadstick to dip into it. It tasted more like a marinara sauce; I couldn't eat it as a soup. In general, I liked the place... but doubt that I'll frequent it once the novelty wears off.

  4. The Indiana toll road used to have some of the cleanest bathrooms you could find on the road. After the lease they went downhill quickly. While not the grossest you'll see, they hover a bit below average. Am not sure if this is indicative of the entire deal or merely a portion of it. But the goals of anyone taking over the lease will always be at odds. The fewer repairs they make, the more money they earn since they have a virtual monopoly on travel from Cleveland to Chicago. So they only comply to satisfy the rules. It's hard to hand public works over to private enterprise. The incentives are misaligned. In true competition, you'd have multiple roads, each build by different companies motivated to make theirs more attractive. Working to attract customers is very different than working to maximize profit on people who have no choice but to choose your road. Of course, we all know two roads would be even more ridiculous.

  5. The State is in a perfect position. The consortium overpaid for leasing the toll road. Good for the State. The money they paid is being used across the State to upgrade roads and bridges and employ people at at time most of the country is scrambling to fund basic repairs. Good for the State. Indiana taxpayers are no longer subsidizing the toll roads to the tune of millions a year as we had for the last 20 years because the legislature did not have the guts to raise tolls. Good for the State. If the consortium fails, they either find another operator, acceptable to the State, to buy them out or the road gets turned back over to the State and we keep the Billions. Good for the State. Pat Bauer is no longer the Majority or Minority Leader of the House. Good for the State. Anyway you look at this, the State received billions of dollars for an assett the taxpayers were subsidizing, the State does not have to pay to maintain the road for 70 years. I am having trouble seeing the downside.

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