4A — August 25 - September 14, 2017 — M id A tlantic

Real Estate Journal


M id A tlantic R eal E state J ournal

By Brenner Green, Real Property Capital, Inc. When your loan Isn’t Really a Loan…


ontinually following the implementation and consequences (many

about it for me is like the book you cannot put down. It could be considered a dated topic as most of this legislation was passed 5-7 years ago, however its’ mag- nitude needs to be appreciated to understand why it is still a current issue. For example, the Dodd-Frank act alone, which passed seven years ago last month, is over 2,300 pages. The legislation required a rewrite of the rule book for lending at ev- ery bank in the country and also required in most cases major structural and personnel related changes that should take years to accomplish. This change has

been implemented top-down (with the largest Money Center banks first) in waves over a pe- riod of the last five or so years. The point is the rules are still “new” and they are still chang- ing for some banks while other larger banks have already been following them for years, so in many cases we are still seeing the effect for the first time. I had a client recently who needed to refinance a warehouse where the tenant has signed one-year leases for eight years. He is well qualified investor who wanted a low LTV and a short amortization. A lender told me

they would do the loan only to come back and say, “we need to be able to call a default if the tenant were not to renew.” My reply was “that would be the one time that he actually needs a loan.” So we are clear, the op- tion of him continuing the loan for the full term and choosing to make payments out of pocket should he have a vacancy was a right the bank felt they needed to take away in order to follow the policy of the current bank regulation. Recently I went to refinance a property that I own and had a similar experience. The

lender wanted a negative covenant should my cash flow dip below some nebulous level. And all I could say to him was “the only way that would hap- pen would be if we had another real estate recession, in which case I probably would have a hard time getting a new loan.” He told me it was because of the bank regulators that he needed this language in the loan. In the end, I was able to have this removed and was able to proceed with the loan. There is an old saying that a banker will lend you an umbrella when its sunny but they want it back when it rains. It’s easy to imagine hundreds of billions of loans written up under these new rules where the bank could be acquired, the new bank says “we don’t want this loan and in a tougher credit environment all kinds of borrowers willing to continue paying could wind up in default.” And in a lesser recession where many mort- gage notes are money-good to the value (as opposed to the last recession where the vast majority of troubled properties exceeded 100% LTV) it could motivate lenders to behave much differently toward bor- rowers, as in, try and take the properties through fore- closure so they could make a nice profit. And all of it would have been brought on by “the banking regulation” and the new rules supposedly designed to “protect” borrowers. R. Brenner Green is a 19- year veteran in commercial real estate finance and President of Real Property Capital, Inc. n Eastern Union Funding promotes David Merkin to vice president Bethesda, MD — East- ern Union Funding has pro- moted David Merkin to the position of vice president, it was announced by senior manag- ing director Marc Tropp , who manages the firm’s mid-Atlan- tic region office in Bethesda. Merkin represents commer- cial real estate owners with properties in the mid-Atlantic region, who are looking for acquisition or construction financing, or to refinance. While the firm advises on all property types, he specializes in the hotel, multifamily and retail sectors. n

unintended) of the post-re- cession bank- ing regulation has become a habit/hobby of mine. Not- w i t h s t a nd - ing that it’s an important part of my job

Brenner Green

to be current on how the imple- mentation of said regulation affects capital markets and commercial banking, learning

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