Trouble in Commercial Loans?
By In the mainstream media, there continues to be mixed messages about the state of the economy. However, most experts would agree that there is a massive amount of troubled commercial loans that need to be worked through before there can be real improvement in the economy. For example, currently there is approximately $130 billion in commercial loan delinquencies — compared to under $20 billion in delinquencies in 2006. For more information about the scope of these woes, check out the February report from the Congressional Oversight Panel, or this blog post about the February report. What does it all mean for Nashville though?
Anecdotally, credit is somewhat looser than it was a year ago. But, for many assets, lending is still difficult because it is tough to determine value. For example, for retail real estate developments, it is a challenge to rely on appraisals still. With high unemployment, and profits down, there are significant vacancies and delinquent leases in many retail spaces. With these factors in flux, it takes guesswork to establish market value for appraisals. In turn, lending is a challenge.
There is at least one other factor limiting the access to credit where real estate of any type is involved. That factor is the health of the banking system generally. Specifically, there are few, if any, banks that are looking to increase the concentration of their portfolios in real estate. So, even when refinancing would be appropriate, finding institutions interested in real estate collateral is difficult.
For the real estate and banking professionals to whom I have spoken, it is not clear exactly how these factors will shake out. To me, the best case scenario would be for unemployment, spending, and profits to all stabilize long enough for there to be some general consensus about the value of commercial assets. This should make credit more readily available. The question is whether the economy can hit that sweet spot without experiencing another round of significant “corrections” to the banking industry and values.
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[...] attorney Bob Mendes says commercial property owners looking to refinance or take out new money will continue to run into a banking wall until the bigger economic picture shows clear improvement. This should make credit more readily [...]
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