Commercial mortgage issue leads to ongoing benefits for tenants
Monday, January 30, 2012 at 1:45PM 
Mortgage rates are the lowest they have been in decades. Unfortunately, commercial landlords may not be eligible, especially if a property is already in trouble. For their tenants, this means the era of exercising caution about leasing from a troubled landlord has not passed.
A few years ago, many landlords used five-year adjustable rate loans to finance properties. Today, those loans specifically are being targeted as "problematic" by the lending industry, a label that will force many property owners to jump through additional monetary hurdles to secure a new mortgage. Thus, tenants need to remain aware of potential operating complications as a result of properties changing hands.
(Since the onset of the real estate decline in 2008, the ATR has been firm in reminding its members and member clients about the importance of airtight Subordination and Non-Disturbance and Attornment (SDNA) language in leases. While always an important clause to have in a lease, it has become especially relevant recently.)
Lenders tend to agree that low cost mortgages have helped landlords hide potential operating issues with properties. This new stance on raising the barriers to refinancing is aimed at exposing them to prevent longer-term losses and damage to real estate markets. Analysts believe that office landlords in second-tier markets will be most affected, as will owners of retail and hospitality properties.
Even though the pace of defaults slowed during 2011, tenants remained in the driver's seat. The coming year doesn't bode well for dramatic changes, although landlords expect an increase in support from special servicers of troubled CMBS loans.
However, another looming issue for landlords is the termination of many large, five-year leases signed during the inflation of the bubble. In turn, sizable sublease options may again appear in 2012, further hampering the appeal of first generation space; and landlords are going to remain very competitive with one another, indicating another year of affordable leasing and a new wave of space availability at high-end addresses.