There has always been a second market for securing loans on real estate and it has been managed by insurance companies that have been providing long term funding for both residential and commercial properties. After the bubble burst a couple of years ago, all these companies suspended their activities in this area waiting to see how the situation was going to evolve and now they literally loaded with money and aching to lend it out on worthwhile projects.
Insurance companies can provide alternatives to commercial foreclosures.
Now they are offering loans at rates as low as 5.5% but the loan to value percentage is much tighter, namely they are willing to fund only 65% of the value of the property, while the borrower needs to come up with the remaining 35%, pretty much in line with what is currently being done by many banks.
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But they become a solution for those trying to avoid foreclosure and willing to put some cash to restructure the loan, which means using the insurance companies as a vehicle to bring the bank to terms and getting a discount on the current loan and then move it to the insurance companies putting in some cash to make it balance again.
A typical real life example given is a property originally worth 12 million where the owner now has to bring 5 millions to the table in order to avoid foreclosure and start with a new loan which could be transferred to an insurance company with the bank forfeiting 3 millions on the outstanding balance and the owner adding 2 millions of his own cash to secure a new long term loan that will allow him to weather the storm.
Listen to the video by Del GoForth that gives you a totally new view at how insurance companies can play a key role in the resolution of the upcoming commercial real estate foreclosure tsunami.
Roberto Mazzoni
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