So We Know We’re In the Weeds…Now What To Do About It.
February 16th, 2010
I’m not good at sugar coating things so let’s just get it out there in case you don’t already know and then we can plan on how to move forward from here.
FACT:
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The Commercial Real Estate Market is heading where the Residential Real Estate Market has been for years and is going to be for years to come. In doing so it’s going to take down several hundred (if not a thousand or so) Regional banks.
Why not the big banks?? Well because the major players have already received help from the Fed to avoid failure- and now are scrambling to deal with Commercial Debacle heading towards them. Many of the Banks like Chase, Bank of America, Wells Fargo, and the major players have been able to use those huge capital infusions to stabilize and regroup. But, if you’re a small or medium sized Regional Bank that didn’t get the Federal Funds and you’ve been struggling to take back a large portfolio or residential mortgages and now you have a wave of non-performing commercial mortgages coming back in default, well guess what- the Feds are going to step in and eat your lunch.
It’s going to be most common in the areas like California, Nevada, Arizona and Florida where we all went crazy buying second houses, investment properties and developed every inch of land we could get our greedy little mits on and now it’s time to pay the piper.
The thing that surprises me is that people didn’t see it coming. When you make money cheap and easy – everyone who shouldn’t be in Real Estate, gets involved. You have teachers and stay at home Moms flipping commercial properties in their spare time with no money down on the transaction, the property repairs financed on a credit card and the credit card is being paid by the home equity line of credit. You had people making $50,000 a year with $250,000 in credit card debt and they owned a home and two investment properties worth $700,000. Those numbers can’t continue forever.
The situation was the same in Commercial Real Estate. Cheap Money, Mezzanine Financing, little to no money down, people paying too much for the properties and you figured you’d hold onto it for 6 months and “make a million”- Sound familiar?
Look -I don’t blame the banks. Last time I checked they were in business…and businesses are here to make a profit for their shareholders-not just a bunch of new friends.
I don’t blame the teachers or the stay at home Moms who were “flipping houses” on the weekends. This is America and everyone has the right to pursue their dreams and make their fortune….this is the USA…that’s what we’re built on.
I don’t blame the Government for Economic Policy or the Fed Chairman for keeping interest rates low . I don’t blame anyone for where we are.
The fact of the matter is, we all got a little greedy, a little short sighted and made some bad choices so we’re facing the music now but we’re in this together and we are going to work out of it.
The whole system is not going to collapse. The US is not going to fold up and shut down. Let’s all just take a deep breath and look at things rationally.
Things are tough and they are going to be difficult for a while. Banks will fail- count on it. Real Estate values will drop further- it is a forgone conclusion. Commercial Real Estate is going to decrease in value in most areas- get over it.
Now that we know the FACTS- let’s figure out what to do to get out of this mess. THERE ARE SOLUTIONS and ways to make money in the market. If you’re an agent, Investor, REIT or even those stay at home Moms that were flipping properties! You can make money in this market.
Come back tomorrow for the game plan.
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Tags: Bank of America, Broker and Agent Information, Business, Business and Economy, Commercial property, commercial real estate, Commercial real estate financing, Commercial Real Estate Opportunity, Commercial Real Estate Values, Nevada, Nevada Commercial Real Estate, Real estate, Real estate investment trust, United States, Wells Fargo
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The Bank now days is as important as the banker. When WAMU was bought out by Chase and they start playing the old switch-a-roo without notification of changes. Your good old banker could do nothing for you.
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