Commercial Lending

Commercial lending is a mess right now, that much is not news. It isn’t going to get any better for quite some time, that much is likely not news to you either; but it appears to be getting worse before it is getting better. I heard the other day that the majority of new loans are requiring 25-30% down and most lenders are highly unlikely to write a loan on a property that has environmental concerns. That means that you need to bring a lot of money into a deal to buy a property that is a very low risk, and properties that have some up-side (either environmental or otherwise) just aren’t going to get loans. That’s a pretty dim outlook.

The first quarter was strong for many banks, but this quarter appears to be a pretty difficult one so far for many of the lenders out there. Specifically, Citigroup and Bank of America were mentioned in many news articles over the past couple of days saying that both the Treasury and the Federal Reserve are making them raise additional capital to further stabilize their balance sheets. Some believe that Bank of America will be filing a rebuttal to the Federal Reserve and the Treasury, but no-one seems to know what that will consist of at this time. I guess we will hear in a couple of days, but I’m not going to get ready to write an offer anytime soon.

One thing is for certain, without the backing of the Federal Reserve and the Treasury, or at the very least until these questions are resolved, it will be very difficult for these banks to source the capital (from federal funds or otherwise) they need to originate new loans.

I hope you’re ready to write an all-cash offer or the seller is willing to carry the loan, the banks appear to have problems of their own right now.

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