I just received the following excerpt from our inhouse Capital Corporation representative about the state of our economy (see my prior blog).

“……The 183-page report was completed by the Congressional Oversight Panel, whose task was to assess commercial real estate loan loss risk to the country’s financial stability. Other observations in the report include that $1.4 trillion of loans come due between now and 2014, and 50 percent are underwater; and that there are nearly 3,000 banks with problematic exposure to commercial real estate. The panel’s bleak assessment of the industry is probably close to accurate if all banks with more than 30 percent of their assets tied up in commercial real estate loans closed shop tomorrow and liquidated.

The reality is much different. Most banks that are overexposed to commercial real estate loans will continue to tread water, and those with capacity to lend will quite likely excel in growing their brand in the coming years. Interestingly, it is the large banks that currently have the most capacity to lend. The top 20 banks in the country possess more than 80 percent of total bank assets. Of those, only two have commercial real estate exposure that exceeds 20 percent of their total assets (BB&T and Regions). Conversely, all others – the 8,080 small and medium-sized banks – have an average exposure that is closer to 40 percent (i.e., 40 percent of their assets are commercial real estate loans). Another troubling commercial real estate trend is that loans are going into default and over to special servicers at an alarming rate. Special servicers are tasked with handling problem conduit loans – the loans originated by Wall Street firms, bundled together and sold as commercial mortgage backed securities (CMBS). According to data provided by Trepp, 10 percent of all CMBS loans are now specially serviced. Property types with the largest problems are hotel, multifamily and retail properties, with 19.7 percent, 13.8 percent and 10.7 percent, respectively, of each category being specially serviced. According to Fitch Ratings Service, the actual delinquency rate for the same CMBS loans sat at 6 percent at the end of January, but with specially serviced loans at 10 percent, delinquencies are expected to rise….”

Ok, first of all let me apologize for not blogging to my site for the past year.  Let’s just say i got very turned off by the unending spam.  I could have probably opened up a national drug store with the number of offers for illegal and illicit drugs.

Ok.  Let’s talk real estate, more specifically commercial investment real estate.  The general pulse of our business on a national level has been a very slow 2009 season.  Let me qualify this by saying that I believe the North Florida market, specifically Jacksonville, FL’s market, is generally a few months ahead of the curve relative to the rest of Florida.  While we had a slow down beginning in 2008, we have certainly seen a pickup in equity resurfacing in late 2009.

While NPLP (non-performing loan pools) have been the preferred lender transaction vehicles, I still expect to see portfolios of fee simple transactions occur below the radar.  No lender likes to have public press of having made a bad loan so expect to hear about transactions after the fact and not before….

The crux of this blog – tremendous pipeline of distressed assets that havent even begun to hit the lenders’ books.  Combine that with unemployment rising ( yes i say rising, dont believe everything that you read as much of it is also measured by who is doing the measuring and how they measure ).  Case in point, Florida’s unemployment is over 11% with Orlando, Tampa and Jacksonville hovering around 12%….

You heard it here, maybe not first, but definitely vocally – expect more failed assets to hit the market AND expect unemployment to hit mid 12% if not even 13%.  Expect the market to head south again…

Signing out -

David Hsieh, Jacksonville, FL  March 17, 2010…..