In 2012, distressed commercial real estate . . . looked a lot like 2011 . . . and 2010 . . . and 2009.
Here are my observations on distressed commercial real estate in 2012:
Lessons from 2012:
- Realistic Expectations: Borrowers no longer dreamed of a magical workout leading to a better day – a day when the white knight (i.e. the dream tenant or the long-forgotten millionaire Aunt) would show up and instantly transform the project from pauperville to profit city. Investors no longer expected lenders to increase the pace of resolving distressed commercial loans.
- Regulators in No Big Hurry: From life insurance companies to banks, regulators continued the course traveled the year before (and the years before) – pushing lenders to resolve loans with an eye toward avoiding pushing the lender into failure. Prudence won over pushy. Interestingly, I didn’t hear a lot of complaining about this approach.
- Loan Originators Paying Attention: For the loan originators who returned to the “positive” side of the ledger (and now are origination commercial real estate loans), they are much more knowledgable and attentive to issues that are problematic when a deal goes bad. Issues are spotted, evaluated and handled. Sure, this point is difficult to quantify. (Who would ever admit it?) And the conversations are handled discretely. It is refreshing.
Predictions for 2013:
- Better in Job Growth Markets: generally, 2013 will look a lot like 2012 with this exception – job growth markets will allow the “marginally” distressed deal to escape the death spiral.
- The Same . . Just Less of It: for all other markets, the slow-mo approach will continue. It is progress in that the bad-deal inventory is being moved off the books of lenders. So, in 2013 we’ll see . . .
- The New Jobless: New loan production will not be healthy enough to employ all of the talented professionals who no longer are needed to handle distressed commercial real estate loans. This one really hurts.
Please post your comments below.
Next up: lessons on technology from 2012 and predictions for 2013.