Commercial Lenders Troubles Can Be Your Gain

The March 28 issue of BusinessWeek had a story reports

“You’re going to continue to see smaller institutions fail because they have no access to capital and they have too much concentration in residential construction and commercial real estate,” said Paul J. Miller, an analyst at FBR Capital Markets in Arlington, Virginia.

U.S. lenders are collapsing at the fastest pace in 17 years amid losses on loans made at the height of the market. The number of banks on the FDIC’s “problem” list climbed to the highest level since 1992 in the fourth quarter. FDIC Chairman Sheila Bair said on Feb. 23 that the pace of failures will exceed last year’s total of 140.

The latest closings will drain $320.3 million from the FDIC’s deposit insurance fund, the agency said. The FDIC and the four banks acquiring the shut-down lenders agreed to share losses on $870.9 million of assets

I recently had a discussion with a commercial loan broker about this.  He indicated that the bank examiners are ‘reclassifying’ existing commercial loans and causing the banks to ‘get rid’ of some of their performing loans.  They are ‘encouraged’ to not issue new commercial loans until after they have ‘cleaned up their books’.  It sounded like this was happening at every commercial bank.

I am not sure how anybody expects every bank to force some of their customers to refinance when no bank is allowed to issue new loans.  Duh!

Now the good news here, for investors, is that there are and will be some great properties that need to be sold.  Some of these sellers are going to be very motivated to clear their debt.  This will take some creativity by the investor (and possibly some access to private lenders).