Unique Original Articles » Commercial Loan Modification Is Easier With A Cost Segregation Analysis

Commercial Loan Modification Is Easier With A Cost Segregation Analysis

Author: RPBCO

The particular latest economic downturn has left lenders with borrowers with the possibility of going delinquent or on the edge because of being delinquent. This has created opportunity for borrowers facing financial hardships. Lenders have over leveraged themselves and now find it in their best interest to work with borrowers rather than foreclose. With the risk of these defaulting and distressed loans turning into a second wave of foreclosures following the recent residential real estate meltdown, banks are now more open and willing to work with commercial borrowers to avoid bankruptcy and save the bank the expense of going through the foreclosure process.

The current economic market conditions have generated a huge vacancy factor, leaving many property owners of retail strip centers, apartment buildings, warehouses and offices in a vulnerable state of affairs. They no longer qualify for the strict lending guidelines of commercial finance, whether private equity, portfolio lenders or institutional banks. The main underwriting culprit: DSR escalation. DSR , Debt Service Ratio, generally at 1:1.20, represents that for every dollar that is lent, the lender wants to see a dollar and twenty cents returned. This ratio no longer “pencils” due to the fact that anchor tenants, major retailers, have shut their doors and the current occupants remaining are only willing to pay a discounted rent rate, predominantly at 50 percent of the previous price per square foot originally qualified by the lender.

As a result, part of originating a commercial modification entails analyzing the market ratios, forensic auditing of mortgage documentation, assessing both historical and future value, and ultimately determining an appropriate solution to suture the cash flow bleeding.


What Is Cost Segregation? Cost Segregation is a strategic tax savings tool that allows companies and individuals, who have constructed, purchased, expanded, or remodeled (landlord or tenant improvements) any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring income taxes.

The primary goal of a cost segregation study is to identify all construction-related costs that qualify for shorter depreciable lives. Reducing tax lives from 27 ½ or 39 years (straight-line) to 5, 7 and 15 years (using accelerated methods) results in an acceleration of depreciation deductions, a reduction in tax liability and increased cash flow.

Benefits Of A Cost Segregation Study

· Increased current cash flow through accelerated tax depreciation.

· Net present value savings on tax depreciation.

· Independent third-party analysis that meets Internal Revenue Service scrutiny.

What Kind Of Projects Qualify? Any structure used in a business environment is eligible for the benefits of Cost Segregation. Based on our experience, percentages of project-related construction costs that could be reclassified from either 27.5/39-year real property to either 15-year land improvements or, 5 or 7-year personal property vary from 10% to 90%.

Examples of projects benefiting from Cost Segregation are Restaurants, Apartment buildings, Hotels, Manufacturing facilities, Retail stores, Office buildings, Wineries, Grocery stores, Shopping malls, Airports, Sports facilities, Golf courses and ranges, Resorts, Healthcare facilities and Medical centers, Industrial buildings, Distribution centers, Auto dealerships, Auto service centers and more.

In order to negotiate, you have to have bargaining chips. These chips come in many forms, from gentrifying the property management for augmenting rent rolls, applying for variances on use codes and certifications of completion, or to selling the distressed property or Note to a sideline of investors. By combining the benefits of a Cost Segregation with your Commercial Loan Modification, the chances of getting approval increases.

Drafting a win/win scenario with the bank, which would entail alleviating their frozen reserves and improving their asset ratios and/or lender portfolios, will only increase your probability of a successful commercial loan modification.

For a FREE No Obligation Analysis,
visit: http://commercial-loanmod.info/?page_id=36
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