Our recent discussions have brought us to the point of trying to figure out a solution to make the real estate market once a gain a viable entity. I get asked the same question all the time by nearly everyone I know;” Hows the market Dan?” The current answer; “It’s okay and the velocity of transactions seems to be holding steady!” The problem is I have no definitive follow-up to reassure anyone the velocity will continue. Nor can I with clarity predict the next few months. How familiar does this sound to what the big boys are saying on all the cable news programs? It’s true damnit.
So back to the beginning (of this blog series) the underlying values of existing loans on real estate are indeterminable in the current environment. Specifically the banking environment. Until the government can remove the stress in the market nothing will change. Have you heard the one about the bank examiners are forcing me to blah blah blah from your laon office? WOW!
Lets define the stress in the market; as previously discussed no one knows what values are or where they are headed and this will impact EVERY piece of real estate with a rolling loan.
We talked about the non-performing receivership loans and all of those currently focused problems. What about the financing issues with banks on current PERFORMING loans. So the coming problem will focus on all of the performing loans with loan expiration dates in the next 3 years. Billions and billions of dollars. Again these are loans that have never been late and not part of the mess previously discussed. Banks will approach these in the same sloppy manner and do what they do best and protect their ass…ets without regard for the strong history of on time payments or the relationship of good real estate to bad real estate or a good or bad owner. Real estate is all the same to them…and thats how we got into this mess to begin with.
Yes folks the banks and their loan officers did not do their job nor are they trained to understand good real estate from bad real estate….HUH? They are trained to understand the banks investment parameters and if property analysis meets those then the loan is made. Now I’ve been in the industry for 33 years and there are a million ways to manipulate pro forma numbers.
So what do we do? There are a couple of solutions. One leave performing loans alone. Renew them for a 3 to 5 year period. Train the remaining loan officers ( and every guy in the work out department) basic real estate principles like location, location, location…trust local experts with long-term honest reputations to help evaluate the appraisal process to determine good versus bad real estate. Finally determine the difference between good and bad owners of real estate. We can survive this but the banks have to cooperate with forward thinking strategy and not reactive cover the ass…ets thinking.
KISS- love that mentality because it applies to everything. Until next time…commreguy…out!