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We had TARP for residential, now comes commercial
Written by: Carl MooreArticle Overview: The residential collapse has contributed to a record number of bank failures. Now banks are seeing commercial lending problems rise, centered around commercial real estate. Bankers, industry analysts and observers widely expect first-quarter 2009 data — scheduled to be released in the next few weeks as part of many lenders’ first-quarter reports — to signal a continued escalation in loan defaults from all forms of commercial borrowers, from the real estate at office parks, shopping centers and commercial building space to more traditional business borrowers. State banks, according to Federal Deposit Insurance Corp. data, reported a 15 percent increase in non-farm, non-residential loans — the regulators’ definition for all commercial loans — as nonaccrual loans within the last 90 days of 2008.
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Free Download - Wall Street Got $1.2 Trillion From Fed By Carl Moore |
We had TARP for residential, now comes commercial
Unlike residential loans, which fund the construction of homes and development of unused land, commercial real estate and business loans finance a wide gamut of economic activity. And many banks, after the collapse of the home-building industries in 2006 and 2007, shifted their resources to commercial lending.
A large percentage of CMBS loans made in 2005-2008 may not qualify for refinancing without substantial equity injections due to much tighter underwriting standards, massive price declines and declining cash flow.
Multifamily loan performance has been deteriorating at a dramatic pace, Parkus said, with Midwestern "rust-belt" states plus Florida, Georgia and Texas among the worst performing markets. Parkus also noted that the deterioration of office properties values are beginning to accelerate due to job cuts.
Exacerbated by declining consumer spending and the shrinking U.S. economy, retail vacancies will likely increase to new highs as bankruptcies, store closings and retail consolidation continues, the bond rating agency said.
Hotel CMBS Loan Performance Deteriorating Rapidly
In a report issued on hotel loans held in commercial mortgage-backed securities by DBRS, the bond rating agency noted that, in a declining economy, commercial real estate investors are seeking long-term leases, low tenant rollover, low expense ratios and the ability to pass along increasing operating expense to tenants. Unfortunately, hotel properties offer none of these features.
"News coming out of the hotel market is, quite simply, not good. Well, bad actually. No, make that terrifying," the bond rating agency said. "Predicting hotel performance over the next 12 to 18 months is like juggling chainsaws while riding a unicycle." Most informed market participants seem to be gathering consensus around a high single-digit percentage decrease for revenue per available room (RevPAR). Given the apparent inability for most individuals to grasp just how bad the economy is and how bad it will get, it would not be surprising to see decline in RevPAR by well more than 10% in 2009, DBRS said.
Article Tags: banks, commercial borrowers, commercial loans, lenders, loan defaults, real estate, shopping centers
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About the Author: Carl Moore RSS for Carl's articles - Visit Carl's website CFO Capital Partners is a group of seasoned business professionals that have come together to offer a variety of services suited to fit the needs of those seeking Corporate and Real Estate Capital. We act as Independent Business Transaction Intermediary serving both Buyers and Sellers, also specializing in the Mergers & Acquisitions of businesses in the mid-market arena, nationally and internationally. Business Transfers, Selling of Businesses, acting as Finders - all fall within our province. We also work with Cooperating Intermediary and Investment Bankers nationwide as well as in Latin America, Europe and Asia. Carl Moore/ Managing Director "We Bring Experience to the Meeting" CFO Capital Partners 437 FoxTract Rd., 1st Floor Bridgeport, NY 13030 O: 315.633.9081 * Efax: 775.248.6603 Carl@CFOCapitalPartners.com * www.CFOCapitalPartners.com Loan Programs for downloads Go To: http://www.cfocapitalpartners.com/ProjectFinancingPrograms.html Click here to visit Carl's website Rental Housing The Saving Grace Developers Changing The Old Business Models Banks Continue To Hold Back on Lending Trends in Seniors Housing Wall Street Got $12 Trillion From Fed |
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