Banks are slowly returning to commercial real estate finance - but the operative word is slowly. They are acting as if commercial real estate lending is as risky as playing Russian Roulette. I submit that is is safer to make commercial real estate loans today than at any other time in the past decade.
Blackburne & Sons (est. 1980) was in business during the Savings and Loan Crisis back in the late 1980’s and early 1990’s. Just like during the Great Recession, commercial real estate values plunged by around 45%. Then the Resolution Trust Corporation (RTC) stepped in and quickly started selling off the resulting commercial foreclosures at just 50 cents on the dollar.
The buyers of those foreclosures made a fortune. Blackburne & Sons financed a lot of these purchases. Our new loans were paid off in around nine months, as the buyers of these foreclosures sold them off for an average profit of 80%.
My instincts tell me that we are in a similar commercial real estate recovery. The Fed has printed $5 trillion to $10 trillion in new money. Our banks are healthy and super-flush with reserves. The auto industry has already rebounded. Housing is recovering.
Jobs are returning to the U.S. We have by far the lowest natural gas prices in the world, giving the U.S. a huge cost advantage in heavy manufacturing. The U.S. already produces 84% of its own energy needs, and by the end of the decade, we are projected to be energy-independent.
Capital is pouring back into commercial real estate. The commercial mortgage-backed securities (CMBS) market is hotter than a pistol, as yield-hungry investors are snapping up these bonds. Even lower-quality asset-backed securities (ABS), backed by hard-money-quality commercial real estate loans, are flying off the shelf.
I don’t expect commercial real estate values to double any time soon, but it is my opinion that the commercial real estate market is once again in a bull market. This is why it may be safer to make commercial real estate loans today than at any time in the past decade.
If your bank is considering a return to commercial real estate lending, you would be crazy not to join C-Loans.com as a commercial lender.
