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

60 Minutes: You're Stupid and You're Fat!

President Obama told 60 Minutes last night that it was "fat cat bankers" that caused the US financial systems to almost completely fail.


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No blame for Congressional members who were taking campaign contributions from the financial services industry and then failed to adequately supervise the likes of Fannie Mae, Freddie Mac and Bear Stearns.

No blame for borrowers who gorged on cheap money when the cash flow of their businesses couldn't demonstrate an ability to pay back those business loans.

Nope. Just the stupid bankers.

Now I'm not defending the fat cat bankers. Just trying to add some perspective that there's a lot of parties that should share in the blame of this financial fiasco.

However, that sound bite won't play as well on 60 Minutes. Or maybe something got left on the editing room floor.

I'm sure the President's meeting today with the banking community will go well when he tells them to lend more money while his regulators tell them don't be "stupid".

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 : fat cat bankers , stupid bankers , 60 Minutes , President Obama

Business Lending Down Six Percent

Business loans in the third quarter of 2009 were down almost six percent according to The Wall Street Journal (subscription required).

No doubt this decline will pit those in Congress who claim that TARP funds should lead to increased lending against bankers who claim regulators are demanding that lenders take less risk in these troubled times. With a fear of a second round of troubled loans primarily in commercial real estate, banks are as risk averse as ever.

The FDIC's troubled bank list now totals 552 problem banks - approximately seven percent of all banks. Fifty banks failed in the third quarter - the most bank failures in a single quarter since the fourth quarter of 1992. "Failure Friday" took a holiday break over Thanksgiving weekend. Look for bank failures to re-commence sooner than later.

If your business loan request is already in process, you still have a chance of obtaining funding in 2009 if you are working with the right lenders. Otherwise, a 2010 funding is the more likely scenario.

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!

Related Tags: factoring, accounts receivable, p.o. financing, purchase order financing, bank loans, equipment leasing, working capital, cash flow

Walmart Shifts to Supply Chain Finance

Wal-mart recently announced a new supply chain finance program according to this weekend's Wall Street Journal (subscription required). I first wrote about supply chain finance in April 2007.

This supply chain finance program will provide Wal-mart's suppliers with accounts receivable financing - a market which has experienced significant turmoil given the bankruptcy filing of CIT and the credit crunch, in general.

Wal-mart's partner banks, including Wells Fargo and Citigroup, will be providing factoring to Wal-mart's suppliers. It is unclear whether these rates will be any cheaper than those offered by other factors and accounts receivable financiers.

The article mentioned that other retailers, including Kohl's, are also experimenting with supply chain finance programs.

If you're having difficulty with your accounts receivable funding in light of the CIT situation or general market conditions, give me a call!

Tags : Walmart , CIT , supply chain finance , accounts receivable , factoring

CIT, Commercial Real Estate and Workouts

Lots of issues to think about these days with respect to loan workouts, CIT's bankruptcy and commercial real estate.

• Last week, I attended the Risk Management Association's panel discussion on loan workouts and restructurings. Panelists included three bankers from the loan workout departments and an attorney who crafts loan workout agreements. The panel's consensus was expect another year of increasing loan defaults in the world of commercial real estate and business loans. Until this workout activity starts to decline, new loan origination activity is not likely to pick up.
• I still cannot figure out the real impact of the CIT bankruptcy. Many borrowers won't be able to find new lenders because CIT's advance rates against inventory was too high and their interest rates were too low relative to current rates. Some borrowers won't find new homes because they won't find another lender with the back-office capabilities of CIT that has traditionally provided.
• The FDIC issued new guidance to commercial banks allowing them to keep commercial real estate loans on their books as "performing" even when the underlying property value has declined. I suppose this is similar to guidance issued for modification of residential real estate loans with the intent to avoid more losses for banks at a time when their balance sheets cannot afford the earning hit.

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 : CIT Group , CIT , bankruptcy , factoring , accounts receivable loans , commercial real estate , FDIC

$5 Million SBA Loans if Your Name is Joe or Doug

Is the SBA considering increasing its guarantees for the SBA 7a loans program for loan amounts as high as $5 million?

Yes. But I think only if your name is Joe or Doug.

Here's a portion of what President Obama had to say about his thoughts on changes for the SBA ...

"The first thing we need to do is increase the maximum size of various SBA loans. So I am calling on Congress to increase the cap on what's called 7(a) loans to $5 million. These are the loans most frequently handed out by the Small Business Administration to help folks open their doors and buy machinery, equipment, land and buildings. These larger loans will help more small business owners and franchisees grow. We also need to increase the maximum size of what's called 504 loans to $5 million. These are the type of loans that Joe and Doug used to expand this business and create new jobs. And we should also increase the maximum size of microloans that go to start-ups and other smaller businesses."

By the way, the expectation remains that the current SBA loan stimulus money will be exhausted by the end of 2009. Don't wait if you want to take advantage of the current higher SBA guarantees and waiver of SBA loan guarantee fees.

Need help finding the right SBA lender or telling your story the right way for your California business? Read "Matchmaking for Business Loans" and give me a call!

Tags : SBA loans , 7a loan , SBA lender , business loans , equipment loans , credit crunch