BANKS ARE THE WORST, HERE’S WHY:
QUESTION: WHEN WILL COMMERCIAL REAL ESTATE MARKETS STABILIZE ?
ANSWER: When banks start to work with their current borrowers and start lending again. GOOD LUCK QUALIFYING.
The answer is that simple yet those of us in the industry and asking “who is going to be able to borrow”? Credit scores have been hammered and people simply don’t care. Borrowers are FED UP with the FED. They are tired of the banks getting bailed out (TALF) then turning around and demanding borrowers to pay more. Lawsuits and the massive over supply of real estate on banks books have devalued the market so much that banks are holding onto the properties.
Entrepreneurs’ make up 60% of the economy and small business in the US. They are not going to take on more risk for less return and high prices. So, who is going to? Well, International buyers but they have a huge learning curve and barriers to entry to get into the US. They also will only look at very large markets where they are comfortable. This leaves most of the country still without buyers and values down.
The current problem – Offers are too low, some as low as 70% below bank costs! What bank wants to take a loss? None. Banks are being told to wait so we are ALL in this HOLD pattern for the last 18 months. Vegas, one of the hardest hit real estate markets in the country, dropped another 10% in 2011. Predictions in Jan 2011 were that ‘we were at the bottom’. Banks are only hurting the economy and market more by waiting. The FED is afraid of a depression if they release now because it affects value and other more stable neighbors.
The markets will begin to stabilize when appraisers get real, banks start to care about the borrower and confidence improves. Investors are tired of being pushed around and will just wait. Lending is going to be very different for the next round. A borrower’s Cash flow History is going to override every other factor when looking at Debt lending. Debt ratios may not get over 50% (much smaller) requiring more equity. This means cap rates are going to be higher & values are going to be lower for the foreseeable future. We predict thru 2013.
Opportunities do exist and deals are getting done without banks. It is a great time to be in Commercial Real Estate because it is easier to make money in DOWN markets than UP markets.
If you do not have a commercial real estate company or person to talk to give Sky West a call. They will assess your needs and put you in the right property.
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