Fearing losses, banks are quietly dumping real estate loans
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Re: Fearing losses, banks are quietly dumping real estate loans
#2These 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.
Re: Fearing losses, banks are quietly dumping real estate loans
#3Re: Fearing losses, banks are quietly dumping real estate loans
#4These 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 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 a lot more if the industry recovers in the next few years. And in the worst-case scenario, the buyers get to take possession of a building at a discounted price after a foreclosure.
“Buy when there is blood in the streets” — Baron Rothschild
Re: Fearing losses, banks are quietly dumping real estate loans
#5These 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 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.
Re: Fearing losses, banks are quietly dumping real estate loans
#6These 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.
The eternal dream that a fool will suddenly appear holding their money? And to be fair, there are almost always some of them around.
Re: Fearing losses, banks are quietly dumping real estate loans
#7These 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 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…
Taking possession of the real estate might not even be the worst case scenario for the buyer of the loans, it might be their plan A all along.
Re: Fearing losses, banks are quietly dumping real estate loans
#8These 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 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…
> 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.
Re: Fearing losses, banks are quietly dumping real estate loans
#9These 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.
>> Who are the buyers of these loans and what is their motivation knowing full well these are future underwater loans.
Banks dont want to be in the business of landlording properties which have gone into foreclosure or bankruptcy. However, there are players out there who are happy to take on the job of landlording or renegotiating debt in bankruptcy -- if they can enter the investment at a favorable price. Those are the buyers.
Re: Fearing losses, banks are quietly dumping real estate loans
#10Earlier 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…
> 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.