Nevada lawmakers consider commercial loans bill to help borrowers stop repayment pressure

by LJ Miehe on March 31, 2011

Business Week is reporting that the Nevada Senate is look at a new bill that would limit a clause that commercial loan borrowers are getting from banks in that state.  During the boom time, the commercial developers signed these loan agreements with this type of language.   It has to due with the decline in the value of commercial properties.  Many of these commercial loans are now underwater or close to it, meaning the loan amount is near the current value of the property.

When you go through the commercial loan process, the lender is not usually going to let you finance a property that just barely covers the mortgage payments of the property.   They want some room for normal price and rent fluctuations.  These clauses give the banks the ability to force the loan to accelerate and force the borrower to pay the loan off and refinance the piece of real estate.  In these market conditions that is going to make it a very difficult situation for many developers and owners.  They will have limited options with banks that are still dealing with bad loans or even worst, they will need to seek alternative financing that will be very expensive that could put them in a bad position if they lose tenants or prices keep falling.

This bill (Nevada SB 414) is going to be lobbied and contested by the banks.   We will need to watch this very closely, if this does pass, this could be a California type moment, where we see this pass and other states adopt the same laws to protect their commercial space owners.  They are large political contributors so they will be a formative opponent for the banks lobbying effort to stop this bill.

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