Well, I left you with that quote in the last blog, and Lo and behold we had a banker from a local community bank speak at our commercial REALTOR meeting just this past week. What timing!

 

The first 30 minutes was a rehash of past history and a discussion of the subprime mortgage mess. Nothing new and nothing that we as commercial REALTORS were overly interested in. I wanted to know about the availability of commercial loans in our market. Here in a nutshell is what he had to say. All of this is from his perspective as an employee of a local community bank as opposed to a regional or a national bank.

 

- 2003 was the biggest year in history for home loan refinancing.

- by 2005 home loans were slowing (everyone had refinanced into 5.00% loans by then).

- a new market had to be created to keep the loan market churning, so we began to see such things as the NINJA loan, SISA loan and other subprime loan products. “The worst loans in the best of times.”

- by 2006 and following we began to see those loans default and snowball into the current mess.

 

How does that affect commercial lending? Not a lot in a direct way, but it does indirectly. For example, if a local bank has loaned money to a local developer to build a subdivision of 100 houses, and he cannot sell them because of the current market, then his loan becomes “nonperforming” if he can’t make his payment. So even though their bank has no subprime loans on the books, they are affected by the subprime mess. 

 

Also, there is an old saying that retail follows rooftops. If that subdivision does not sell or continue to be built out, then banks are going to be reluctant to loan money to a developer to build a store near that subdivision. So even though there is money available to build a store, a bank is going to be reluctant to lend. They are going to scrutinize that borrower and his project much more carefully than they might have in the past. 

 

So how does that affect someone wanting to be in the Commercial Real Estate in Athens, or anywhere else for that matter? In my opinion, a person who wants to get involved in Commercial Real Estate needs to do several things-

 

- Develop a relationship with a local community bank, and develop it early.

- Get to know the commercial loan officer well before you need the money to purchase a piece of commercial property. It is going to be difficult in the future to walk in off the street cold into XYZ Bank and sit down with the commercial loan officer and try and get a loan. -

- Relationships need to be made sooner, not later.

 

One last little tidbit he said, I found interesting. He said that if you see a bank in your market doing things like offering 12 month CD’s at 6.00% with current interest rates being where they are, they are raising capital. Ask your self why-

 

- Are they raising capital to expand, or make loans available?

- Are they raising capital so they look attractive to be bought by a larger bank?

- Are they raising capital because they have loans that are “nonperforming” and they need the capital to be in business.

 

Go take your local commercial loan officer out for a cup of coffee. Tell him I said hello.

 

Semper Fideles,

 

Terry