Sunday, July 11, 2010

Mid-Summer and its Heating Up!

Whenever one thinks of commercial real estate these days, you have to wonder about the
slowdown in retail, the unemployed and lack of demand for more office space (hitting a 17.5% vacancy this week, a high) and the seriousness of the "extend and pretend" loans on the books.
What the banks are doing is basically putting off a problem and hoping time heals it. A rolling loan gathers no moss. Many properties have 120% LTV or better but so long as the interest is paid, who cares. The banks don't want to show the loss, the borrower doesn't want to lose the property and the debt is getting serviced. We are in a new norm and THIS is what is propping up the entire economy. If the banks called in all these loans, look out 30% decrease in values would occur in just 1 year from the oversupply. Low interest rates are here to stay until we see unemployment ever break through 9%. There's a lot of pent up demand to purchase property, its starting to kick in and since we have a mid-term election in 6 months this should help maintain the level of activity.