I got this question from a visitor this morning so I thought I’d put it out to our members and the web.
I represent the owner of a large, foreclosed upon hotel. We’re exploring HUD 232 LEAN financing for an assisted living facility. Of late, there seems to be an increase in inquiries related to retail or light industrial uses, which I take as a small, but encouraging sign of hope. I’m curious if any others are sensing any slight “uptick” in distressed commercial inventory. Thanks. –Attorney Boston, MA
As far as the availability of distressed commercial inventory, we can definitely quantify that. Banks are holding about double what they were a year ago in commercial OREO. BankProspector is showing the Q3 call report with 3,121 banks with $5,837,549,000 in commercial REO up about 74% from last December and we’re forecasting the December 09 report will show a doubling from the same quarter last year.
Its been widely reported that banks have not been willing to sell at market prices. In fact to do so may threaten the very existence of many of them. That’s why nonaccrual commercial loans loom at about 630% the volume of commercial REO.
WSJ During most of 2009, opportunistic investors accumulated cash to go after distressed assets but there was very little deal activity primarily because lenders were unwilling to unload debt at distressed prices. But this year, more lenders are expected to take hits as the financing drought continues and rents and occupancy rates keep falling.
As far as appetite for these deals is concerned I’d be interested to hear from the readership of this blog and our members.
From my position as a real estate auctioneer I don’t see a problem with appetite in the market. I am dealing with fewer dreamers and more seasoned, better equipped (albeit somewhat fewer) investors at my auctions, but enough of them to make market prices.
The problem I see is with sellers who won’t take the hit. Largely they are prolonging the pain and losing value. For some it’s a simple balance sheet equation, for others a clouded perspective and a hangover from single digit caps.
What’s your take on the appetite for distressed commercial inventory? Scroll down and leave a comment below.
What is HUD 232 Financing?
Summary: Section 232 insures mortgage loans to facilitate the construction and substantial rehabilitation of nursing homes, intermediate care facilities, board and care homes, and assisted-living facilities. Section 232/223(f) allows for the purchase or refinancing with or without repairs of existing projects not requiring substantial rehabilitation.
Purpose: Section 232 insures lenders against the loss on mortgage defaults. Section 232 insures mortgages that cover the construction and rehabilitation of nursing homes and assisted living facilities for people who need long-term care or medical attention. The program allows for long-term, fixed rate financing (up to 40 years) for new and rehabilitated properties and (up to 35 years) for existing properties without rehabilitation that can be financed with Government National Mortgage Association (GNMA) Mortgage Backed Securities.
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