Professor Elam

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Commerical Real Estate on the Auction Block

This article details a PWC survey suggesting regional banks will start dumping non performing commercial real estate loans. I have noted in class that there are plenty of For Lease signs around SA, someone said yesterday that the average home price in Detroit is now $6400. 

AT any rate, that is fine to say as a bank you are going to sell your non performing loans but to who and for what price?  I doubt there is anyone to extend credit to the buyers, so only those with cash need apply. And the banks will all be trying to unload, I would guess at the same time. So the result will be a down spiral of prices at which commercial real estate will sell. The deflatoin continues. 

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One response to “Commerical Real Estate on the Auction Block”

  1. Austin Kroll Avatar
    Austin Kroll

    As noted with my previous commentary on this blog post, by the kind professor, OREO (other real estate owned) and NPA (Non-Performing Assets) as percentages of Total Capital on the Regionals and Independent Banks will sky-rocket, particularly with the Regionals. Ultimately, the problem is this, every bank’s Special Assets Group will be faced with a challenge. Do we take a loss knowing we can get it off the books or do we hold out, carry it, and have poor ratio performance next time we file our FDIC Call Reports with the hope that it will eventually get better? Ultimately, a bank has to get it off the books prior to the Examiners visiting from the OCC, or else….
    On the Borrower’s side now, if you don’t cash, you are not doing any purchasing. Such will be the case for the next 18-24 months or so until things improve and then off we go again to make the same mistakes. We learned this lesson 20 years ago and we learned it about 10 years prior to that. Will we learn it again? Yes, we will, to quote our President! Sadly, this man believes if the false hope of keynsian stimulus and printing of currency, which is akin to running a marathon while drinking cups of Dr. Pepper every mile. Such might quench your thirst at the moment, but after 0.25 miles, you’ll be hating life and thirstier than ever.

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