Commercial Real Estate Finance

Posts Tagged ‘Extend and Pretend’

When it comes to the financing of commercial real estate, the “extend and pretend” approach taken by many banks is well known.  However, it feels like more and more stakeholders in the commercial real estate industry are doing their part to kick the can down the road.  The latest evidence of this is the Permit Extension Act, signed into law last week by Governor Rendell and the Pennsylvania Legislature.  The law extends expiration dates on permits, approvals, and other agreements issued by local governments and agencies in Pennsylvania authorizing real estate development.  While the Act provides a gasp of fresh air to developers who are stuck in a tight spot on their stalled development projects, it is yet another blow to folks waiting on the sidelines with dry powder to pick up distressed deals. 

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I think that the flood of distressed property has never materialized because of what is commonly described as extend and pretend. If the economy continues the slow up tick, and real estate owners can continue to make loan payments, it is unlikely that distressed assets will hit the market in droves.

However, Robert Griffin, president of the New England region for Cushman & Wakefield expects that “you’ll see a lot of distressed properties coming on the market in mid to late 2010’’

I think that Robert Griffin, who makes his living from real estate transactions, might be a bit biased in his predictions.

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In the commercial real estate space, you likely by this time have heard the phrase “extend and pretend,” usually in reference to what a bank will do when faced with a non-performing loan coming due on their books.  Rather than foreclose and ending up owning an asset, which banks are not in the business of (nor do they have the proper asset and property management staff  requisite to keep the asset from devaluing further over time), they would rather extend the term of the loan and allow the borrower to continue to try and turn the asset around. In the mean time, they will sit on there collective hands and pretend there is no impending doom in relation to the asset, or their portfolio full of similar problem properties.  After all, it is likely the borrower is more of an expert in how to fix the asset’s issues than the bank.

But after attending a brokerage conference last week that was full of investors of the four major food groups (multi-family, retail, office and industrial product), I think perhaps that there is a new phenomenon.  Banks may be extending and pretending, but investors are doing the opposite: Pretending and extending….as in their hopes and expectations for their assets, and the markets for them. Read the rest of this entry »

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The Week of November 7-13

- China is very close to restricting debt on property purchases.

- Two Japanese banks are merging to create the country’s fifth largest bank.

- The NAIC has approved a plan to develop a new credit rating model.

- According to the Fed, banks are continuing the practice of extending and pretending.

- Is Singapore about to make the same mistakes the rest of the world made in regards to a real estate bubble?
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The Week of Oct 31-November 6

-  Warren G. would be proud of the government, as they regulate commercial mortgage modifications.

- The founders of the Related Cos. are forming a new bank and acquiring a seized lender.

-  Is “Extend and Pretend” really a viable option?

- Peter Cooper Village is hurting more than just its owner.

- Are banks not ready for commercial mortgage losses?
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