Is the FDIC Having a Negative Impact of Commercial Real Estate?
Today, I came across an excellent blog by Erika Morphy of Globest.com. Her blog was titled “Does FDIC think about the impact it’s having on commercial real estate?”. My personal opinion to her questions is a simple no. The FDIC is a government run entity that has one job to do: Sell off Assets That Have Been Seized from Failed Banks. So, again, my answer is no.
But, Erika’s blog did lead to ask another question: Is the FDIC having a negative impact on Commercial Real Estate? For this, I believe that the answer is yes. I don’t think that the FDIC is purposely having a negative impact on the CRE world. But because their job is to sell off assets as quickly as possible, I do believe that CRE values have and will continue to take a big hit with these auctions. I also believe that these auctions will have a negative impact on other banks, as Erica did a great job pointing this out with the below example here in Atlanta:
“The most blatant example is news reported by Bloomberg that FDIC is holding a $1 billion auction in which it is selling off loans – including a loan to build a W Hotel in Atlanta – that may trigger write downs among other banks as well. Half of the loans were originated by Silverton Bank, according to Bloomberg – but several other banks joined Silverton in providing the $80 million W construction loan. These banks will have to take write-downs as the Silverton loan goes to auction, and possibly push many to the edge of insolvency. It’s not just this auction: reportedly of the $50 billion or so in loans seized by FDIC, 63% involve other lenders.”
Bottom-line for Commercial Real Estate: I truly believe that in 2010 & 2011, CRE properties’ values will continue to decline while FDIC, or any other kind of auctions continue to take place.
