41–50 of 74 posts
Why would a bank give a "non-recourse" loan for commercial property? Doesn't make sense to me.
I still doubt the whole scenario. I hope some emergency regulations to turn empty commercial real estate into housing is passed, I know it’s not ideal, but it’s not impossible.
In a world of remote workers without retail, commercial real estate has taken a big hit.
In my area, that means that there are 4 malls that are planned for demo, and one with a lot of vacancies, not to mention untold strip malls ready for the same fate.
These properties are all being rezoned to mixed use or residential development. All of them.
Seems plausible. Vacancy rates of commercial property is ~~down~~ up significantly in major cities (SF, ATX, NYC, SEA, ...). What I want to know is: is it possible to find out how many of these commercial loans contain a "non-recourse" clause?
The company has three core activities:
1. Raising money from investors 2. Buying properties when the price is less than the expected profits. 3. Selling properties when the price is more than the expected profits.
At a point a year or two or three ago, the math on buying properties just stopped making sense on individual property basis. That whole side of the business just ended up going into sleep mode. No purchases since forever. However selling properties (adding cash), and fund raising (adding cash) kept right on going. The net result is the company owning only a small percentage of what it used to own, but having one heck of a war chest. Which they are sitting on, waiting for the economics to make sense again.
Earlier quoted context omitted.
> banks generally do not loan more than what the building is worth. The building's worth was often based on pre-pandemic rent expectations. Lots of buildings are very empty these days, even if they're still currently leased. I wonder what the rates of renewals will be on suites where practically nobody goes to.
The article is talking about new loans, which are always going to be based on current valuations, not pre-pandemic ones.
My understanding a lot of commercial real estate is pretty highly leveraged with mortgages that only have a few year fixed rate. It sounds to me like there's a lot of buildings which are having significantly reduced incomes (fewer tenants) while their loans are about to get a good bit more expensive. For those with non-recourse loans, walking away in another few years might just be the only viable option assuming commercial real estate doesn't turn around.
I've got no opinion on whether the author here is full of it or not, but it doesn't seem entirely implausible to me.
Earlier quoted context omitted.
The article is talking about new loans, which are always going to be based on current valuations, not pre-pandemic ones.
I don't think the claim is about new or future loans. The suggestion is that they're raising money via equity, not via new loans. They'd just be defaulting on their old loans. But I agree that the story as a whole made very little sense.
Raising money by issuing new shares wouldn't have anything to do with anything here.
Putting aside the nonsense of "absolutely disgusting", this is incredibly vague and exceedingly implausible. Critiquing: > They say the largest property companies in the US (they named names, I can’t) are raising huge amounts of money... if they stop paying the loan, and the bank gets the building back, the bank cannot sue them for the remainder of the loan. For this reason, banks generally do not loan more than what…
This is the same thing that happened to residential housing markets in the S&L and subprime mortage crises, right?
Earlier quoted context omitted.
Wouldn't the government be taking an ownership stake in the banks at the banks' reduced market cap? How does the taxpayer lose out in this scenario?
What if there isn't positive equity left in the banks? What about opportunity cost? The money for the bail out likely needs to be borrowed, what about inflation and anemic economic growth due to interest costs?