Commercial Real Estate Loans in Canada

Commercial Property Loans in Canada

First Published Date : July 28, 2010 ADawnJournal.com

The commercial property market in any country plays a major part in its economy, being the point where retail and investment banking meet. There is a lot of encouragement given by any government in the issue of keeping commercial properties running and finding a way for them to keep up with debt repayments so as to avoid the worrying eventuality of a commercial property closing down – thus depriving the economy of the tax dollars from the property and business itself, and the banks of important money from mortgage repayments. It is a lose-lose-lose situation when one takes into account the owner of the business going bust. Yet there is a very real situation emerging at present which suggests that commercial property loans will need to be looked at very closely in the coming year.

Commercial loans are unlike residential mortgages in that the latter are self-amortizing, and as long as the resident has a well-chosen mortgage their payments will shrink in real terms as the life of the mortgage runs down. At a given point with a commercial loan, the payments may well begin to increase, having been agreed on the basis that profits from business will rise year-on-year. Depending on the nature of the loan, the case may well be that the borrower needs to look at refinancing the loan or repaying it in full. There are billions of dollars’ worth of commercial property loan coming due for refinancing or repayment this year – and several companies who are in no position to meet either of these conditions.

At present, the government and the banks are working together to find the best way of ensuring that the mortgage deals hanging in the balance are restructured in a way that leaves no-one too seriously out of pocket. Although the properties which are bought with commercial real estate loans represent an asset that can be repossessed and re-sold, there is still a large level of reluctance to borrow among the general and business public, raising the spectre of commercial properties remaining vacant for the time being. This leaves the banks with assets of limited worth, the government with a reduced level of tax income from these sources, and civic authorities with the problem of empty properties on their high streets – not encouraging for trade, and considered to be injurious to civic pride and all the things which flow from that.

As we were in a recession with a global reach, there are no short cuts where business and commercial real estate financing is concerned. Foreign investment is no more likely than domestic, as Canada is in better shape than most economies worldwide. In order to keep businesses open and trading, some level of agreement needs to be made between the government and private finance so that the best outcome for everyone is achievable. Anyone looking for a commercial real estate loan at the present time may well be in an advantageous position, as there will be breaks available while the government seeks to encourage lending. Everyone is holding their breath at the moment waiting to see how this recession has had its play coming out of recession. Some proactive conduct on the businessperson’s part at this moment might well be sensible.