Commercial Real Estate Finance

Posts Tagged ‘owner’

We’ve been hearing more and more stories about commercial real estate owners handing the keys back to the bank on properties that are under water.  We’ve heard even more stories about banks extending financings so that they don’t actually have to take those keys back.  The reason being that banks are not in the business of owning real estate, they are in the business of taking deposits and lending those deposits out to make interest revenue.  With the economy in the doldrums, this is happening not just in the real estate world, but the corporate world as well.  Many companies are giving up huge stakes in their business to their commercial lenders to alleviate indebtedness.  Wouldn’t banks like to take advantage of some of the opportunities that are falling into their laps?

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This list of Top 5 Loan Modification Myths is reproduced from the New York Real Estate Lawyer blog written by The Devery Law Group.  It is geared towards borrowers in single-family homes, but I think owners of commercial property can benefit from some of the points as well. 

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It turns out not every Canadian is a dim-witted Dudley Do-Right riding backwards on his horse.  In fact, the Canadian’s have proved they know what they’re doing when it comes to running large, private banks.  In a time when the largest U.S. banks are suffering from rapid deterioration of market value, Canadian banks are actually improving their market cap without having to engage in dilutive capital raises.  There’s no doubt that RBC, TD, Bank of Nova Scotia, Bank of Montreal, and CIBC (the 5 largest Canadian banks) have weathered the economic downturn far better than their U.S. counterparts.  In many instances Canadian markets move in step with U.S. markets, so what could be the reason for the relatively strong health of our banking neighbors to the north?

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An interesting article in the New York Times last week highlighted the heated debate that is taking place amongst lenders, realtors, mortgage brokers, and appraisers in the residential real estate market.  The debate stems from the new Home Valuation Code of Conduct, which has been in effect since May 1st as a method of reducing the inherent conflict of interest amongst lenders, brokers, appraisers, and owners.

Personally, I think the Code of Conduct creates more problems than it solves.  But after reading the article I began to wonder if there was any imminent threat of similar regulation creeping into the commercial real estate market as well.  After all, sloppy lending and bogus valuations have caused every bit of trouble in the commercial space as they have in residential.  If we don’t regulate the valuation process which, believe me, is the last thing I want to see, how do we arrive at better property valuations that best serve all the parties involved in a transaction?  How can we value a property in stagnant markets where no transactions are taking place for comparison? Read the rest of this entry »

Real Questions…

…. and Unintended Consequences

Question 1:

If you are a buyer of real estate (and actually have capital), what sort of IRR are you looking for? 20%? 30%?

Question 2:

If you are an owner of real estate, why on earth would you sell into this market unless you absolutely had to?

These questions succinctly sum up the entire commercial real estate market. Other statements examine facets of the problem, but they all revolve around this problem we’ll call, “The Bid/Offer Spread”.

Every day, the fund managers who still have jobs wake up, read the Wall Street Journal and say to themselves, “If I’m going to buy a property, I deserve a discount.” Any possible ‘green shoots’ notwithstanding, unemployment is high, the economy is in recession, global icons are getting destroyed (or taken over by the government), and the banking system as a whole is only viable because the Feds have stepped in with HUGE assistance programs. You can also throw in the fact that recent liquid market action (rally in gold, commodities and TIPS while the 10yr notes sells off ) is telling us we might even have an inflation problem in the not-so-distant future. Read the rest of this entry »