Some developers and building owners opt to stop paying mortgages to get better loan terms
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From the June issue: As the commercial market continues to struggle in New York, an increasing number of developers here are turning to so-called strategic defaults to force lenders and special servicers to enter into negotiations for loan restructurings.
The trend comes at a time when lenders are under increased pressure to keep their loans current. It also comes as developers are struggling to maintain the cash flow they promised their lenders during original loan negotiations.
And the number of strategic defaults — where the borrower may technically be capable of making the loan payment, but delays doing so as a way to improve his negotiating hand — is expected to rise even more in the near future.
“Sometimes [it] literally has to show up as a nonperforming loan to get any movement as a workout from a lender,” said Matthew Anderson, a principal at Foresight Analytics, a market research firm. “You can also understand from the lender’s standpoint that they don’t want to be handing out a loan modification without a valid reason, because that creates a loss on their books.” [more]
