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Who May Be Providing 60% of All Financing for New York City Commercial Real Estate?
January 20, 2010 by Neil · Leave a Comment
Foreign banks now provide more than 60 per cent of all debt financing for commercial real estate. The predominant player among these lenders: Bank of China. Fannie Mae and Freddie Mac, along with life insurers, provide the overwhelming majority of the other 40 percent.
Bank of China and other foreign lenders are taking advantage of underwriting terms and spreads that are particularly attractive today. Like many other foreign banks, Bank of China focuses only on trophy commercial assets in gateway cities such as New York, Los Angeles or San Francisco, at ratios that do not exceed 65 percent.
Why aren’t the big U.S. banks lending? They’re hoarding their cash because they overleveraged themselves. When the market hits bottom, they need to cover their assets. They simply lack the liquidity to make the loans, the very reason for their existence.
To quote David Stockman from today’s blistering NYT op-ed:
In supplying the banks with free deposit money (effectively, zero-interest loans), the savers of America are taking a $250 billion annual haircut in lost interest income. And the banks, after reaping this ill-deserved windfall, are pleased to pronounce themselves solvent, ignoring the bad loans still on their books. This kind of Robin Hood redistribution in reverse is not sustainable. It requires permanently flooding world markets with cheap dollars — a recipe for the next bubble and financial crisis.
Moreover, rescuing the banks yet again, this time with a steeply sloped yield curve (that is, cheap short-term money and more expensive long-term rates), is not even a proper monetary policy action. It is a vast and capricious reallocation of national income, which would be hooted down in the halls of Congress, were it properly brought to a vote.
