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Tight credit chokes commercial real estate


This is the most striking message regarding the real estate market that attendees to the National Association of Realtors® conference received. The conference, which this time took place in San Diego and ended yesterday, is a yearly event gathering real estate professionals, industry experts and economists.

Lawrence Yun, NAR's chief economist, stressed that the lack of financing for commercial real estate transactions is hindering a revival of the economy. As banks become burdened with increasingly unsound loan portfolios collateralized by commercial properties that are losing value, they retreat from their lending functions and create a tough environment for commercial transactions. Yun called on the government to "take action to relieve some of the lending pressure."

 The government is, in fact, taking small, tentative steps to help resolve the crisis, and to this end, it recently relaxed banking guidelines on how to deal with troubled loans. However, since commercial real estate loans usually mature in five years or so, it can be expected that lenders, already nervous, will find it difficult, if not impossible, to refinance the loans made in the last few years as they become due. Federal regulators have their work cut out for them as they try to figure out how to deal with the approaching turmoil.

In Miami, local banks are seeing their commercial loan portfolios grow progressively more unstable as the value of their collateral collapses and, of necessity, have curtailed lending to all but the most credit-worthy borrowers. Some of these banks, unfortunately, will probably not be around when the economy recovers. Luckily, in Miami we have foreign-owned banks and foreign bank agencies that are willing to lend because they have cash rich parents abroad. It is possible to obtain up to 90% financing on some commercial real estate loans, and even grace periods of up to 24 months. Even these institutions, however, have very strict lending guidelines and are looking for high down payments and financially solid clients who can bring whole relationships, meaning business operating accounts, personal accounts, private banking and all other financial services such banks offer. This is a window of available credit that is not easy credit by any means, and, considering the magnitude of the problem, it's a small window indeed.


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