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Thursday, June 01, 2023 2:08:15 PM
Bank problems caused by commercial property loans will depend heavily on the bank's lending practices.
Traditional bank lending will offer a loan up to 75% of the value of a property, more often only 65%. In this situation when a building loses significant value, and the building owner is out of equity and stops loan payments, the bank is rarely underwater by very much. Real bad news for the property owner though.
Smaller regional banks became far more aggressive with "mezzanine loans" which are sort of like a second mortgage with higher interest rates and are frequently used when commercial properties are being built. These bank portfolios may be blandly called commercial property loans but they're obviously more likely to suffer major losses.
Banks heavily involved in this business model locally in Los Angeles are First Republic Bank, which has already failed and City National Bank which I assume would have also failed by now had they not sold themselves to Royal Bank of Canada in 2015.
Almost every major commercial or multi-family project I thought was too risky was festooned with the "Blue Ladder" logos of City National Bank.
Traditional bank lending will offer a loan up to 75% of the value of a property, more often only 65%. In this situation when a building loses significant value, and the building owner is out of equity and stops loan payments, the bank is rarely underwater by very much. Real bad news for the property owner though.
Smaller regional banks became far more aggressive with "mezzanine loans" which are sort of like a second mortgage with higher interest rates and are frequently used when commercial properties are being built. These bank portfolios may be blandly called commercial property loans but they're obviously more likely to suffer major losses.
Banks heavily involved in this business model locally in Los Angeles are First Republic Bank, which has already failed and City National Bank which I assume would have also failed by now had they not sold themselves to Royal Bank of Canada in 2015.
Almost every major commercial or multi-family project I thought was too risky was festooned with the "Blue Ladder" logos of City National Bank.
We've run out of other people's Social Security taxes needed to subsidize our low income tax rates.
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