Gary A's  Instablog

Some Fed workout scenaries allow interest only to continue, and others allow balloon payments to be stretched into monthly payments. This will help some businesses.

However, this will possibly dry up bank credit to others and will certainly be ineffective when these companies continue to see deterioration of cash flow. If the consumer does not return, it won't just be the real estate difficulties that cause many of these businesses to tank. It will be the inability to pay for merchandize, to get financing for merchandize, meet payroll, etc., that will also bring these companies to the brink. A company paying an interest only loan for real estate probably has other loan difficulties.

Scroll down to page 14 of the pdf. from the Fed for examples of loan workouts. The idea that these workouts will somehow save the commercial real estate industry is pretty optimistic and may not prove to be the case: www.federalreserve.gov/boarddocs/srlette...  

There is one an example of a construction loan of a spec house, with the lender not foreclosing based upon the builder renting out the property. It seems to me that rental values do not reflect the ability to repay the loan. The Federal Reserve scenario is that the lender expects "full repayment of principle and interest from rental income". That sounds pretty pollyannaish to me.