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2012: The Year All Hell Breaks Loose For New York City Apartment Building Investors?
April 20, 2010 by Neil · Leave a Comment
In January, 2010, Multifamily Investor blogged about how 2012 would be the year that New York City multifamily trading volume would explode. About $650 billion in banks’ boom-time CRE loans are coming due over the next four years, with more than $150 billion maturing in 2012. In a case of the tail wagging the dog, JPMorgan Chase Chief Executive Jamie Dimon’s predicted that 2012 will be the year when banks return from the brink, and commercial real estate returns from death’s doorstep. (For the sake of NewYork Community Bank, which has a whopping 94% of its debt in the CRE arena, he better be right.)
As heralded as the future Treasury Secretary’s wisdom might be, it is not enough.
The crucial key for conventional wisdom now pegging 2012 as the year: the amount of money banks have to set aside to cover bad loans has peaked. Provisions have been falling at large and midsize banks, and chargeoffs appear to be peaking. If that trend holds, these banks could have the bulk of their bad loans cleared from their books within two years.
Great assistance to the funding for this endeavor: The Fed keeping the cost of borrowing at close to zero. If banks can continue to borrow at or near zero for the long term, they have no urgency to mark their bad loans down to market.
Banks had $186.8 billion in chargeoffs in 2009, according to the FDIC. Chargeoffs doubled from the previous year, $99.5 billion, in 2008, and almost quadrupled from the prior year, $26.7 billion in 2006.
So why will 2012 probably be the peak year?
1) A deluge of overleveraged owners will not be able to borrow or refinance to save their properties. They will either have to sell, short sell, or throw keys.
2) Supply of New York City multifamily stock will be more plentiful.
3) Credit should be far looser, and New York City apartment building buyers will have an easier time purchasing with OPM.
Hat Tip: US Banker
