'Extend & Pretend' Protecting Asset Values - Hurting Long-Term Prospects?
Investor's Business Daily reports: When Investor’s Business Daily (IBD) sought to detail what is happening with distressed commercial real estate in the US, they cited data aggregated by Real Capital Analytics (RCA) to state initially that, $320.0 billion in distress has been registered between 2007 and May of 2011, including defaults, foreclosures, and bankruptcies. More than half that total has been worked out, with banks taking back $39.0 billion in loans and restructuring another $53.0 billion, while $85.0 billion in loans have been through a full sale or refinancing.
IBD used those statistics to point out that the proportion of cumulative distress worked out would be much lower currently if banks weren’t harboring so much additional legacy trouble on their balance sheets through “extend and pretend” practices. However RCA Managing Director Dan Fasulo told IBD that as values have risen on commercial properties over the past year, “It’s pretty clear from where we’re sitting that the worst is over.”
The policy of allowing banks to maintain toxic and overleveraged assets on their books for an extended period of time is quite different from the last cycle of heavy distress in the commercial property sector of the early 1990s. During that “Resolution Trust” era, banks were encouraged to quickly purge their distressed holdings, with the result being a massive asset devaluation period. However, the current cycle’s policy may carry with it another unintended consequence: “…it could lead to the same slow growth that has afflicted Japan for years.”
View the full article on Investor's Business Daily: 'Extend & Pretend' Protecting Asset Values - Hurting Long-Term Prospects?
Articles related to this topic:
CMBS Issues Quickly Rising, But Are Underwriting Standards Falling Just As Fast?
Outstanding US Distress Still Hovering Around $180 Billion
The Start of a New Cycle? Shovels Being Sunk in Miami by Foreign Developers
Private Equity Firms Pair-Off and Line Up for Anglo Irish's US Loan Portfolio
For Vegas, Today's Pain Will Be Tomorrow (or Many Years from Now's) Gain
Bubble, Bubble, LTV, and Trouble
Macroeconomic Troubles May Stymie CMBS Pipeline
Latest RCA Distressed Asset Update Speaks to Health of Market
Posted by: Nina Turner