Extend and Pretend

The recent bank practice to "extend and pretend" was the focus of a commercial real estate panel discussion held last night at UCLA. The moderator, Jesse Sharf of Gibson, Dunn & Crutcher, questioned four leading members of the commercial real estate industry on a variety of topics including "when will deals reappear?".

About two hundred attendees listened attentively to the responses of John Brady (Oak Tree Capital Management), Samuel Freshman (Standard Management Company), Bill Lindsay (Pacific Coast Capital Partners) and Sean Mahon (Wells Fargo Bank).

Here are the highlights from my perspective:

• The October 30, 2009 (the night before Halloween) guidance issued by the FDIC and other regulators has made it very easy for banks to extend and restructure commercial real estate loans that otherwise could have been classified as troubled assets.
• Commercial real estate values will likely drop to 50 percent of their peak values as cap rates increase from 6% to 9%.
• There is a HUGE shortage of capital available to re-finance all of the commercial real estate loans maturing in the next three to five years due to the implosion of the CMBS markets and balance sheet challenges faced by the commercial banking community.
• Low interest rates are keeping a lot of commercial real estate loans from going into default. Look for the Federal Reserve to keep benchmark rates low for the foreseeable future.
• Deal flow for commercial real estate loans and investor opportunities will not recover until the unemployment rate starts to drop.
• All four panelists opined that commercial real estate values will continue to decline in 2010.

If you were looking for some good news from last night's meeting - well, they served a very nice chardonnay! Crisp, refined and a hint of pear.

I've still got some commercial real estate bridge lenders actively pursuing loan opportunities of at least $1 million. Give me a call if I can help!

Tags : extend and pretend , commercial real estate loans , FDIC , bridge loans , private money loans

Turnaround Management Association - A Hard Slog

Nearly half (49%) of the respondents to the Turnaround Management Association's (TMA) distressed industries forecast think durable improvement in the economy is unlikely until at least the second half of 2010. About three out of ten think the worst is over, but nearly 20 percent suggest the economy has yet to hit rock bottom.

Access to capital remains a big question for how the economy will fare in 2010 according to 52 percent of respondents.

Three out of four respondents think the commercial real estate industry will fare the worst in 2010 as debt matures and lenders remain reluctant to refinance.

"Overleveraged balance sheets are one of the primary causes of industry problems," said William K. Lenhart, CTP, a partner with BDO Consulting in New York. "In 2009, many lenders were more willing to 'extend and amend' terms so borrowers were not in default. It is unclear if these companies took this opportunity to improve operations, reduce expenses and sell off underperforming assets to reduce debt."

My own sources have referred to many commercial bank lender's actions in 2009 as more like "extend and pretend" or "delay and pray".

Happy new year? We'll see.

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!

Tags : Turnaround Management Association , TMA , extend and pretend , commercial real estate , bridge loans