Accessing Capital for Commercial Real Estate Is Difficult in the New Normal

RE Journal ^ | 05/04/11 | Richard Gatto

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Accessing Capital for Commercial Real Estate Is Difficult in the New Normal

May 04, 2011 | Staff Writer

By Richard Gatto

Executive Vice President – The Alter Group

With the nation’s banks sitting on between $1.2 and $1.3 billion worth of capital, they are nevertheless reluctant to lend on commercial real estate because of the elevated level of risk and current valuations of properties already on their books. Many banks own portfolios of commercial real estate whose valuations have declined significantly and do not want to increase their exposure.

Currently, banks are under pressure to de-leverage and raise their book capital ratios to assure that they have adequate liquidity to cover losses. This is critical because they are carrying approximately $1.6 trillion in loan balances on commercial real estate. This is 14 percent lower than the 2008 peak, which indicates that banks are writing down and selling loans and not lending as much as they did previously.

As long as banks are risk averse, the capital markets will not function at a pace considered to be anywhere near normal. Typically, banks account for half of all lending; CMBS falls between 25 and 30 percent; and insurance companies, Fannie Mae and Freddie Mac combined contribute just 10 percent.

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P!

[not2worry]

Another union pension fund debacle.

Another opportunity for the Obama adminstration to solve a union problem with tax payer’s money.

Another stimulous opporunity in the works that makes the pension funds whole without creating jobs or actually improving the economy.

If you are not in the industry you don’t realize how much property Unions actually have purchased for their pension funds.

The ordinary guy’s 401K plan goes up in flames while the union members get made whole by the Government.

JMHO