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Commercial Property Rollover Risk

Thu, 2008-04-24 20:20 — Broker

What Do We Mean By Rollover Risk? A commercial lender we represent offers commercial property borrowers a loan for a 25 year term. Borrowers can elect to take the first few years as interest only, which most tend to do. Most other commercial lenders offer short term, interest only, loans. These loans require repayment or re-negotiation at the end of the term, which is usually 3 or 5 years. The “Rollover Risk” applies to borrowers who have a short term loan reaching maturity. The borrower faces the following uncertainties:

  • Will the existing mortgagee have funds to renew the loan for a further term?
  • Will a new valuation be required, involving extra cost and the possibility of a reduction in the loan amount and/or revised loan terms?
  • Will the existing mortgagee require up-dated financial documentation, and will it be a good time in the financial cycle to have to produce such documentation?
  • Will it be a good time to re-finance with another lender, which will no doubt involve additional expenses?

Many of us have heard of borrowers (even some of the bigger companies) feeling the strain of rolling over maturing debts in the current climate. Beware of “Rollover Risk” if you are a commercial property borrower.




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