Commercial Real Estate Prices

December 2009 Looked Good But Banks Still Looking Down

Posted on Wednesday, February 24, 2010

Funny how you can pick up any paper today and read two or more articles related to the many indicators we rely on and predicting vastly different recovery time lines, patterns and outcomes.

For example, on the one hand, CRE transactions were looking good in December, leading some to at least hint that the doom and gloom we’re hearing about CRE in 2010 and futher may be a lot of hype.

At the same time, we keep hearing that recovery depends on the bank. There are now 702 banks on FDIC watch list, with a heavy emphasis on small and mid size community banks heavily invested in CRE. 5% of their loans are rumored to be at least 3 months late. 140 banks failed last year and even Sheila Bair has admitted we can expect even more than that number this year, noting that banks are "bumping along bottom." Aside from the obvious issues with bank failures, much of the government plans to encourage recovery are bank-reliant. For example, the $30 billion small business loan program. We keep hearing that in order for a recovery to take hold, banks need to lend. Yet at the same time we’re seeing a decline in loan balances in all categories except credit card loans as banks have slowed lending, are calling risky loans (essentially putting sometimes healthy folks out of business because of an internal bank policy to withdraw, for example, from certain business sectors), but also borrowers are avoiding borrowing when they don’t have to. Banks wrote down $53 billion during Q4 2009.


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