Let's say you have an office loan that is set to mature. Your timing couldn't be any worse, right? Right. In this current environment, especially after the events of this week with First Republic, lenders are more loath than ever to extend or give an additional term to most office loans. And let's not even discuss trying to find a new lender relationship with an alternative source, such as a life company.
But there is an option, one that the market hasn't seen in a while thanks to the decades of ultra low interest rates.
It's called an equity kicker, a strategy in which a lender converts a portion of the loan to equity so the debt can be re-serviced. In other words, a lender agrees to extend a loan provided it can share in the upside if the property eventually sells for more than the loan is worth.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
