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All Cash: Why You Should Prepare To Buy Commercial Real Estate That Way (Or Close To It)
November 10, 2009 by Neil · Leave a Comment
More than two-thirds of respondents to a Federal Reserve Board survey of top senior loan officers said that as much as 10% of their commercial real estate loans were in foreclosure. Up to one in every four loans for land purchases are threatened by foreclosure, according to 10.4% of the respondents. The survey of 57 domestic banks also said banks continue to clamp down on a wide range of loans. Demand for commercial real estate loans continues to deteriorate, 46.4% of the bankers said.
Not mentioned: banks’ loan to value ratios are so conservative in the bank’s favor, only a “fire sale” price would make the purchase compelling enough for buyers seeking immediate cash-on-cash returns.
Not helping matters: banks hold toxic mortgages on their books at inflated values, in the absence of government requirements to mark them to market. Banks therefore continue to borrow funds at next to zero in order to prepare for the day foretold in the Book of Revelation when their papered over loss on paper becomes real.
