I know I'm late on this post, but I've heard enough about the sub-prime mess. Okay, I know just enough to be dangerous, and what I understand is that home lenders promoted loans that "financed" a person into buying a house. In layman terms; supporting value based on "can you make the payments" mentality. Those sub-prime borrowers typically would not have qualified for a loan or at least not as large. Of course, a few of those loans are in default or up for adjustment and the borrower can't satisfy its terms.
That's the problem and depending on the volume of default could or could not be a big deal.
Okay, that is the old news. What about today and what about commercial real estate?
Now it seems some attention has been placed on commercial loans and the commercial real estate market, and experts believe that the commercial capital markets might dry up a little over the next few months. Interesting and a likely scenario, but not because of commercial sub-prime loans. I was at a conference a few weeks ago, and one of the experts on a panel told us that, "not one commercial sub-prime loan was ever issued". Hmm... I guess the attention towards commercial is more of a fallout effect.
Well that's encouraging right? Maybe at least for the borrowers and lenders.
However, my personal observations show a trend of sharply increasing commercial real estate values beginning a few years back. One of the catalyst fostering such growth were low debt servicing costs. Check out a chart of LIBOR rates. While commercial loans tend to be more conservative in nature, some really great loan rates are now coming due and borrowers should expect higher debt servicing costs. Then that capital goes back to the marketplace and cannot achieve the same return unless prices decline. My point is commercial properties are going through is market related swing due to rising and falling financing costs and its connection to real estate values not loosely issued credit.
As usual, I have to finish with "what does that mean?" Well, there is a chance that we will see some commercial prices come down in some markets. Drastically? I doubt it. Keep in mind this post has focused on the financing side of an investment, and there are many other factors to consider. For example, overall the American economy seems stable, we have a significant population, and jobs are good so don't throw the baby out with the bath water. However, there may be some opportunities for a savvy investor to find a deal.
That's the problem and depending on the volume of default could or could not be a big deal.
Okay, that is the old news. What about today and what about commercial real estate?
Now it seems some attention has been placed on commercial loans and the commercial real estate market, and experts believe that the commercial capital markets might dry up a little over the next few months. Interesting and a likely scenario, but not because of commercial sub-prime loans. I was at a conference a few weeks ago, and one of the experts on a panel told us that, "not one commercial sub-prime loan was ever issued". Hmm... I guess the attention towards commercial is more of a fallout effect.
Well that's encouraging right? Maybe at least for the borrowers and lenders.
However, my personal observations show a trend of sharply increasing commercial real estate values beginning a few years back. One of the catalyst fostering such growth were low debt servicing costs. Check out a chart of LIBOR rates. While commercial loans tend to be more conservative in nature, some really great loan rates are now coming due and borrowers should expect higher debt servicing costs. Then that capital goes back to the marketplace and cannot achieve the same return unless prices decline. My point is commercial properties are going through is market related swing due to rising and falling financing costs and its connection to real estate values not loosely issued credit.
As usual, I have to finish with "what does that mean?" Well, there is a chance that we will see some commercial prices come down in some markets. Drastically? I doubt it. Keep in mind this post has focused on the financing side of an investment, and there are many other factors to consider. For example, overall the American economy seems stable, we have a significant population, and jobs are good so don't throw the baby out with the bath water. However, there may be some opportunities for a savvy investor to find a deal.
