A wave of cautious optimism has emerged among experts as sales of commercial property loan securities increase across the US. Such increases have the potential to strengthen balance sheets of banks, thereby increasing liquidity to increase lending. An added benefit comes in the derelict properties being reborn for new uses from the increased lending. The cost of lending also appears to be stabilizing, which is considered a must for recovery.
Of course lenders want to sell more loans in the short term, but all they really care about is their own balance sheets — the house always wins. In the meantime strong demand to purchase commercial property loans is helping lending institutions to maximise the price because of the competition pushing up bids in what is becoming a deep loan market. As one would expect the lenders are not slow to benefit.
Whereas at the height of the crash lenders were concentrating on selling off acquisition, development and construction loans, which bore the biggest losses, currently all manner of loan securities are being sold, both non-performing and performing. The sale of non-performing loans cuts the cost of loan workouts and also the risk of increasing the number of distressed assets on their books, while the sale of performing loans also reduces risk because it diversifies their income stream and also allows them to pursue new lending opportunities resulting in a win-win situation.
In case there is any doubt about the motives of the lenders selling the loans; it is estimated that more than half of the $1 trillion worth of commercial property loans set to mature in 2015 are in negative equity. Investors however, are able to asses this risk as part of their own investment portfolios, and with the current recovery in global commercial property investment, the loans are being seen as good opportunities to benefit from the lenders aversion to risk.
Non-performing loans are being snapped up by proving attractive to private equity funds, hedge funds and opportunity funds that are in the market of taking risks for high rewards. In buying these loans investors are buying commercial property at a fraction of its value, which can often be repositioned to generate positive cash flow.
These buyers are perhaps the biggest benefit to the commercial property market, as they are injecting new capital and management into properties that have been in a state of limbo. Meanwhile Performing loans are also seeing sustained demand from income oriented investors. Learn more from Fisher Investments
Article written by Liam Bailey on behalf of IPINglobal.com | Structured Property Investments (more…)