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Debt Crisis Hitting CRE Borrowers Hard

Rapid deterioration in the debt arena has halted many deals mid-stream, and tales of sales in outright free fall are mounting throughout the CRE industry.

By Joe Clements | Updated on August 14, 2007

Joe Clements is co-editor of Debt & Equity Journal, from which this article is excerpted.

Boston—For commercial real estate borrowers, it is the financial equivalent of being caught on an elevator during a blackout. Rapid deterioration in the debt arena has halted many deals mid-stream, and tales of sales in outright free fall are mounting throughout the CRE industry. After maintaining a calm demeanor when problems spilled over from the housing market’s sub-prime woes earlier this year, lenders are now reportedly changing terms halfway through for commercial transactions–or walking away altogether.

When asked whether lenders are using the stubborn “material adverse change” (MAC) clause to sidestep commitments and render safety features like rate locks meaningless, one investor says simply, “Absolutely.”

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