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With increasing vacancies in the northern and central New Jersey office market, lenders and special servicers are becoming more willing to explore a modification and restructuring of defaulted mortgage loans in connection with a successful workout strategy. Recent market data reveals that New Jersey's office vacancy rate is approximately 24.5% as of the end of second quarter 2012. Lenders have come to realize that they will incur substantial dollars in tenant improvements, property maintenance and renovations, as well as marketing and leasing efforts to both maintain and attract new tenants. The completion of a foreclosure and the taking of title to a commercial property with substantial vacancies and uncertainty in tenant renewals of existing leases may be an expensive solution in many distressed office properties.

In New Jersey, lenders that take back property through a foreclosure proceeding are required to pay a realty transfer tax, as well as a sheriff's commission of approximately 4% of the successful bid amount at the sale. In addition, lenders often find themselves having to do deals with substantial unpaid real estate taxes that take priority over the lender's mortgage. Lenders in New Jersey are not always willing to pay these substantial fees, commissions, realty transfer taxes and related expenses in connection with a foreclosure or deed-in-lieu transaction, especially with the increasing number of vacancies in many New Jersey commercial and distressed office properties. These trends in the overall New Jersey commercial real estate market have forced lenders and special servicers to consider other potential workout strategies with their borrowers.

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