Today's Quick Commercial Loan Lesson:
I saw an interesting commercial real estate loan package yesterday that enjoyed a very low loan-to-value ratio, something like just 40%. Wow, 40% LTV.
In addition, the borrowers' combined net worths exceeded the loan amount. The Net-Worth-to-Loan-Size Ratio exceeded 1.0. Each borrower also had good credit. It looked like a perfect deal to me.
So why was this cherry loan coming to a hard money lender like Blackburne & Sons? Why wasn't some bank financing the deal? The answer is that the seller was carrying back a second mortgage of 30% of the purchase price.
Even though the combined loan-to-value ratio was only 70% - and our borrowers still had plenty of skin in the deal - no bank would ever consider such a loan. Bank regulators essentially forbid banks from financing any commercial property with subordinate financing. How about a credit union? Hmmm. Maybe. Worth a call. Where do you get a huge list of credit unions? CommercialMortgage.com.
This Great Inflation May be the Recession We've All Been Awaiting:
After the stock market took a beating this past quarter, many of us have been expecting the start of another great recession. Stocks would fall another 30%, and real estate would fall by 45% again, just like it did during the S&L Crisis, the Dot-Com Meltdown, and the Great Recession.
Millions of Americans would lose their jobs in this expected great recession, and everyone would be short of cash. Hundreds of thousands of companies nationwide would fail - just like they did during the last three great recessions.
But maybe this time really is different. Congress no longer fears deficits. The Fed will buy just about any government bonds created by this deficit spending. "Deficits no longer matter." Yikes. What could possibly go wrong?
It may be time for us to consider the possibility that the Great Inflation is the great recession that have all been expecting. By the way, this isn't my idea. I read it in an article somewhere; but the suggestion makes sense.
Great recessions are always evidenced by great economic pain. Certainly this horrible inflation has been painful for all of us. Trips to the nearby fast food restaurant now cost almost as much as a nice meal at Applebees used to cost.
You should be willing to KILL
to get loan servicing rights. :-)
But where's the stock market crash? Maybe we have already seen it.
What about the crash in real estate values? Values seem to have topped for the moment; but there may not be another leg down. People who own nice real estate simply no longer want to sell at any price. It's not a price issue. People are starting to understand that they can no longer rely on the paper dollar to preserve wealth anymore.
So is the pain of the current great recession appearing in the form of the Great Inflation? Certainly this inflation has been like an enormous tax on us all. I dunno. Maybe. Haha! Just watch... the stock market will crash by 30% next week, home prices will crumble, and I will look like an idiot. Remember, this theory wasn't my idea.
Miscellaneous:
Do you remember that exhilarating old Arnold Schwarzenegger movie, Predator? It was in that movie where an alien, wearing dreadlocks and using the ability to be invisible, hunts humans as a sport and a right of passage.
Hulu is now showing for free a prequel to Predator called Prey, set in North America in 1713. It has the same aliens, but the hero is a heroine - a very competent Indian maiden. She fights this evil alien using an ancient bow, tomahawks, and her wits. Outstanding movie.
It has been 18 months since I have enjoyed a good restaurant meal. Did my tastebuds just go bad? And no, I haven't had COVID. Food at restaurants recently simply has not tasted all that good.
I finally figured it out. Because of this crazy inflation, restaurants have been forced to use meats and ingredients of a much poorer quality, in order to keep prices down. Now that I have mentioned it, see if you don't agree.
