Truth AND Consequences

Financing is a huge part of the real estate market and right now is a barrier to entry for most people.  The actions and choices of the past several years created a lending climate virtually devoid of integrity.  The biggest question in the real estate lending market is how do we restore trust and activity - simple, we must require TRUTH and deliver CONSEQUENCES!  Fortunately, we are beginning to see a turn for the better.

Debt Markets, Lending, and Financing - The general feeling about financing in the real estate world is cautiously optimistic.  There is beginning to be some activity in the commercial lending world, but close scrutiny of borrower and property continue to pose some challenges.  There continue to be some concerns about whether or not lending institutions have really learned the necessary lessons from the  last several years.  One such issue is the slow return of "cov-lite" bank debt.  These loans minimize or even do away with the maintenance covenants that require the borrower to meet certain requirements or risk having their loan called.  While these terms do not always result in a higher default rate, they do make the loan "unsellable", resulting in many banks demanding the option to reinstate maintenance covenants is necessary.  One interesting trend in real estate financing is the acknowledgement of green financing as a potential high profit low risk investment.

Foreclosures, REOs and Workout Trends - One of the biggest challenges to the lending world is the high number of residential and commercial foreclosures.  MSNBC reported over 1 million homes were foreclosed on in 2010 and anticipated more in 2011.  These staggering numbers are based in large part to the slow down in the process after such findings as robo-signers led to more scrutiny and oversight in the process.  While certain areas of the US continue to see high foreclosures rates, DFW has seen a 28% decline in foreclosures showing the localized nature of this issue.  While banks are eager to sell their REO properties, they do not typically do so at fire sale prices.  Many banks are developing workout programs for lenders including principal reduction, reduces interest rates, and elongated payment periods.  Regardless of the approach, it will take time to work through the foreclosure inventory and the impact it has had on both the commercial and residential markets.