Bad commercial real estate mortgages held by banks continue to increase and may have almost doubled from the end of 2007.Most of the bad commercial real estate mortgages were funded within the last few years when underwriting standards were loose and bankers let borrowers use cash flow assumptions that were too optimistic.
According to Foresight Analytics as reported in The Wall Street Journal (subscription required), the delinquency rate for commercial real estate mortgages held by banks has increased from 1.5% to as high as 2.6% at the end of 2008.
With banks holding almost 50% of all commercial real estate mortgages outstanding (estimated at $3.4 trillion), I estimate that this increase in delinquencies alone is equal to almost half ($170 billion) of the phase I bailout money to be invested bank balance sheets via the TARP program. So here's another reason why banks may not be lending the TARP money - they are saving it for the rainy day about to hit commercial real estate mortgage portfolios.
By the way, the other big source of commercial real estate mortgages was the commercial mortgage backed securities (CMBS) market. The CMBS market has been effectively shut down having also been the source of funding for many of the residential mortgages now in default.
So there are the two reasons it will be challenging to find a commercial real estate mortgage in the near term. The commercial banks are saving their balance sheets for a rainy day and the CMBS market is closed.
If you're having difficulty financing your commercial real estate property in California, give me a call. I'm working with one private money, bridge lender whose rates currently range from 8.5% to 10.0% (before points) for bridge loans secured by commercial real estate in California of all property types. The lender is able to fund loans of up to $50 million and is willing to consider properties in other western states.
Need help finding the right lender or telling your story the right way for your California business?Read "Matchmaking for Business Loans" and give me a call!
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