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CRE News - "Cherry pickin"

By
Mortgage and Lending with AAM Capital

There is a real concern over "cherry picking" the best deals with the remaining national commercial real estate lenders.  Business is booming for these guys and no plans in increasing personnel to cover the new loan submissions.  This is affecting CRE agents across the nation according to the latest CB Ellis survey.  New purchase sales are down over 70% in many areas with local and national lenders passing on many deals.   All income streams for the agents are under pressure.

Some of our agent partners still believe this is a down cycle which has been seen before and will come back sooner rather than later.  However, this isn't just a down cycle. It is a catastrophic meltdown of the financial markets that now includes local banks.  It's a good move to examine the business model and seek more opportunities for income.

Our attitude is to control what we can and move forward with the new rules of the game.  Deals will not be highly leveraged with the exception of multifamily at 80%.  The rest are almost case by case scenarios but generally are averaging 70% LTV for the remaining property types. There is 75% LTV with higher pricing for general purpose investment properties in good shape. Owner occupied properties even with SBA financing is at best 80%.  But don't count your chickens before they close.  Private lending is in hog heaven and may be the best opportunity for some. Be careful of companies and do your home work. A few are under federal investigation for taking up front money with no intentions of lending.  Commercial rates vary widely but many are just glad to close any more.

Speaking of business models.  Very few of our agent partners mine their database for refinancing opportunities.  Many of those past clients will have or are having cash problems.  Those past clients need their agent and a good mortgage professional to help. We work with agents to help those clients.

We don't yet see the bottom of the financing meltdown as the residential mortgage securities market still hasn't figured out what to do. The new law isn't any help at all but is designed to promote confidence within the investment market.  All agents should take a close look at that as it will affect the entire market shortly.

 

 

Jeff Rauth
Commercial Finance Advisors, Inc - Birmingham, MI

I hear you.  The meltdown is here on our side of the business(commercial real estate loans), but in my humble opinioun this won't be worse than the savings and loan crisis. Im thinking mid 2009 and we'll have found some type of stabuility.  Maybe its just wishful thinking. 

By the way Im still getting sba loans done at 90% though only on general purpose.  Also I've heard that Lehman cant give away their CDO's as there is simply no buyers.  

Aug 05, 2008 02:27 PM
Rick Fitzgerald
AAM Capital - Chattanooga, TN
The MultiFamily Expert

I was with First Republic Bank for years and we were the largest modern era bank to fail in 1989. It was wild beyond any bankers imagination. Unless you went through it.  The first modern era bank failure where the FDIC only insured up to $100,000 was a small bank down the road from us. People were terrified making it far worse than it should have been.

Our major competitors were the S&L's and their failing led many to fear the entire banking system.  The stampede to withdraw money was something to witness. 

This one is different in that the entire mortgage securities market lost confidence and stampeded out the back door.  The Fed is stretched so thin in guaranteeing almost everything now still has the market spooked. The bright side is our commercial market has performed very well so keep your fingers crossed!

Aug 07, 2008 03:28 AM