Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Fearing losses, banks are quietly dumping real estate loans

nytimes.com

Post reply on HN
Print view View original

21–30 of 113 posts

Re: Fearing losses, banks are quietly dumping real estate loans

#21

Post by jojobas »

vineyardmike wrote: post #14
qwertyuiop_ wrote: post #2

These articles don’t provide the complete picture. Who are the buyers of these loans and what is their motivation knowing full well these are future underwater loans.

They won’t all end up underwater, and they’re not necessarily being sold at full price. Banks have additional duties to maintain their portfolio for additional regulatory reasons that don’t apply to other institutions. We saw this play out for First Republic last year. Other investors clearly think that the loans have some value. Some loans may not go into default, but banks down want depreciated assets on their book…

Yeah, how about someone would buy these loans, combine them into pools based on risk and sell on as a great investment tool suitable for every risk/profit profile?

Re: Fearing losses, banks are quietly dumping real estate loans

#22

Post by theandrewbailey »

> It’s an early but telling sign of the broader distress brewing in the commercial real estate market, which is hurting from the twin punches of high interest rates, which make it harder to refinance loans, and low occupancy rates for office buildings — an outcome of the pandemic.

And that's what I think is behind much of the push for RTO. While a lot (if not most) office space is rented, corporate executives are the kind of people who could have a lot of money invested in commercial real estate. They see this large threat to their portfolios, so they're trying to keep their assets from depreciating.

Re: Fearing losses, banks are quietly dumping real estate loans

#23

Post by danielmarkbruce »

timr wrote: post #16
TuringNYC wrote: post #11

Earlier quoted context omitted.

>> In the US it's more or less impossible for the loans to be worth "nothing". Totally disagree. A loan can absolutely be worth nothing, especially if it is a 2nd/subordinated lien. Imagine you buy a house for $1000 with $800 borrowed ($700 first lien, $100 second lien.) If the home goes down in value 30%, the second lien is worthless. The administrative and legal cost of recovering the second lien may be greater tha…

You're describing a situation where the second lien is underwater. This is not itself the value of the loan. Just in the obvious case, if the borrower continues to pay, the lien is worth the future value of its cashflows. Not everyone who goes underwater on a loan simply stops paying. In the US, even loans in default tend to have some value, because speculators are willing to buy the debt and attempt collection.

Then, just take the example and imagine they declare bankruptcy. That loan is going to be worth 0 in the vast majority of cases.

Loans go to zero. It happens in real estate, it happens in oil and gas, it happens in other places I'm sure. It's not especially common, but it happens.

Re: Fearing losses, banks are quietly dumping real estate loans

#24

Post by danielmarkbruce »

qwertyuiop_ wrote: post #2

These articles don’t provide the complete picture. Who are the buyers of these loans and what is their motivation knowing full well these are future underwater loans.

Motivation = make money.

Method = pay less than face value.

Re: Fearing losses, banks are quietly dumping real estate loans

#25

Post by TheOtherHobbes »

jaggederest wrote: post #5
toomuchtodo wrote: post #4

Earlier quoted context omitted.

They may not be future underwater loans. Buyers are speculating on a distressed asset someone is willing to let go at a discount. Might be worth nothing, but also might be worth something. Banks have more stringent regulatory requirements with regards to these loans than speculators. From the piece: > For investors, the attraction of snapping up discounted commercial real estate loans is that the loans could be worth…

As I've learned sometimes businesses are unable to properly value something that, intuitively, has a clear nonzero value. Classic example would be selling something with an ongoing royalty of e.g. 10% of future profit.

The UK has huge swathes of empty commercial property.

The book value of the property is related to prospective rental income. It is - bizarrely - sometimes more profitable for owners and investors to maintain the fiction of high rental value without any income than to drop the rental value to something realistic and take a realised loss. Even if that's generating real income.

I would guess it's the same in the US.

This leans suspiciously towards subprime-all-over-again, where the nominal value and security of investments is being wildly overstated.

At some point it's going to have be unwound, which will create some interesting readjustments.

Re: Fearing losses, banks are quietly dumping real estate loans

#26

Post by api »

theandrewbailey wrote: post #22

> It’s an early but telling sign of the broader distress brewing in the commercial real estate market, which is hurting from the twin punches of high interest rates, which make it harder to refinance loans, and low occupancy rates for office buildings — an outcome of the pandemic. And that's what I think is behind much of the push for RTO. While a lot (if not most) office space is rented, corporate executives are the…

Real estate infuriates me to the point that I find myself hoping it burns to the ground and that the whole industry suffers.

“Real estate always goes up” is treated like a damn entitlement to the point that the financial well being of everyone under 40 today has been sacrificed to it. In 2008 it felt like the entire real economy was put on the chopping block to bail it out.

I’d love for a real estate market that looks like Japan. That way the real economy built around people actually doing things could flourish free from endless real estate idle rent extraction.

Re: Fearing losses, banks are quietly dumping real estate loans

#28

Post by lwansbrough »

api wrote: post #26
theandrewbailey wrote: post #22

> It’s an early but telling sign of the broader distress brewing in the commercial real estate market, which is hurting from the twin punches of high interest rates, which make it harder to refinance loans, and low occupancy rates for office buildings — an outcome of the pandemic. And that's what I think is behind much of the push for RTO. While a lot (if not most) office space is rented, corporate executives are the…

Real estate infuriates me to the point that I find myself hoping it burns to the ground and that the whole industry suffers. “Real estate always goes up” is treated like a damn entitlement to the point that the financial well being of everyone under 40 today has been sacrificed to it. In 2008 it felt like the entire real economy was put on the chopping block to bail it out. I’d love for a real estate market that look…

Agreed. The de-risking of the housing market has been disastrous for The de-risking has come in the form of artificial scarcity caused by zoning gatekeeping and outdated fire code, amongst other things. It’s time North America took a hard look at the root causes and fixes them before there is a crisis of confidence in leadership (which is already happened to me - I’m moving out instead of buying in to the insanity.)

Re: Fearing losses, banks are quietly dumping real estate loans

#29

Post by aslgbb »

qwertyuiop_ wrote: post #2

These articles don’t provide the complete picture. Who are the buyers of these loans and what is their motivation knowing full well these are future underwater loans.

Just have the Fed take it. They've already printed enough money to buy $2.4T in 'mortgage-backed securities', what's a few more $T on the pile?

https://fred.stlouisfed.org/series/WSHOMCB

Re: Fearing losses, banks are quietly dumping real estate loans

#30

Post by crznp »

toomuchtodo wrote: post #10
creer wrote: post #8

Earlier quoted context omitted.

> Might be worth nothing In the US it's more or less impossible for the loans to be worth "nothing". They are usually secured by the property itself. But the loan itself is worth less if it's in default, rather than not quite yet in default. So it can be a better deal for a bank to sell it away now rather than later.

These investments should have immediate positive value at the right price, but there are potential edge cases that are catastrophic to such a speculative play (maybe have to tear the building down, future dispute wrt claim, etc). Unlikely, but possible.

It doesn't seem wildly unlikely: there is a fundamental shift in how office spaces work.

But the other side is possible too: even if the loans had a guaranteed long term value (like SVB's bonds), they could be an issue in the short term. More so if getting the value out of the loan requires both time and effort (eg: legal costs).

Post reply on HN