The Credit Crunch: Is it over yet?
March 13th, 2010 | by admin |Here at Financial Management Group we’ve been asked this question by a number of our clients lately. Positive economic news has been slowly making its way into national broadcasts. Job claims are down—or at least not climbing as fast as they were a few months ago. Black Friday shopping levels were up a bit.
So is there light at the end of the tunnel? Have we hit the bottom yet?
Unfortunately, the answer is no. The commercial real estate lenders we work with still see some problems ahead.
It’s true that some fresh capital is slowly starting to trickle into the sector, but you have to remember that massive amounts of debt scheduled to mature over the next several years will far outpace that. The degree of deleveraging the market needs to fuel the re-emergence of a strong lending market is being affected by any number of factors.
In other words, months (even years) of market depression are likely still ahead.
Granted, loan funds are still available in some places. But that may not do you much good if you’re underwater. For example, if you bought back in 2006 assuming that rents and occupancy would be increasing, then you’ve obviously missed your goals considerably. Add to that the tightening of loan underwriting standards and you see that the gap between existing mortgages and takeout financing is simply getting wider, not smaller.
Deutsche Bank estimates that maturing portfolio and commercial MBS loans will increase at the following pace:
$204 Billion this year
$207 Billion in 2010
$296 Billion in 2111
$338 Billion in 2012
It’s been reported that around 350 property and debt funds have raised an estimated $135 billion of equity since 2008. In addition, REITs have sold $15.6 billion in stock during 2009 and floated over $9 billion of secured debt. Finally, just since August four mortgage REIT’s lined up $1.5 billion through IPOs.
The problem is…it’s still not the amount of capital we need for a strong recovery. A recent report from Pru Real Estate Research stated that if the $2.8 trillion in mortgages taken out between 2005 and 2008 had to be refinanced in the current economy, the underlying properties would qualify for only $2 trillion in debt. That leaves a serious funding shortfall of $825 billion that would have to filled by new money or write-downs.
How does this impact your current situation? What are the solutions and opportunities that may be at your disposal? The answers of course are different for just about everyone. It is only by sitting down with a well qualified, experienced and market-savvy investment manager or consultant that you will find the best path for going forward. Every client we meet with has his own particular challenges.