Ken
As for commercial real estate, BlackRock "probably had an overzealous view of where real estate was going to go," Mr. Fink said, noting that before 2006, it has been a sector where there had been "tens of years of success."
Commercial real estate hasn't rallied much, and if you believe that tight spreads and high yields will continue and that the U.S. can expand only about 2% a year, "we are going to have slow healing," he said.
Nevertheless, it is an area on which BlackRock will be revisiting, he said, noting that for the first time in a year, an investor has given the asset manager money to be put into the sector "because they think values are now appealing."
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slow healing - maybe he was alluding to the following -
Federal bank regulators issued guidelines allowing banks to keep loans on their books as "performing" even if the value of the underlying properties have fallen below the loan amount.
The guidelines, released on Friday by agencies including the Federal Deposit Insurance Corp., the Federal Reserve and the Office of the Comptroller of the Currency, provide guidance for bank examiners and financial institutions working with commercial property owners who are "experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties." Restructurings are often in the best interest of both lenders and borrowers, the guidelines point out.
The new guidelines are targeted primarily at the hundreds of billions of dollars worth of loans that are coming due that can't be refinanced largely because the value of the properties have fallen below the loan amount. In many of these situations, the properties are still generating enough income to pay debt service.
Banks have generally been keeping a lid on commercial real-estate losses by extending these mortgages upon maturity.
However, that practice, billed by many industry observers as "extending and pretending," has come under criticism by some analysts and investors as it promises to put off the pains into the future.
Now federal regulators are essentially sanctioning the practice as long as banks restructure loans prudently.
The federal guidelines note that banks that conduct "prudent" loan workouts after looking at the borrower's financial condition "will not be subject to criticism (by regulators) for engaging in these efforts."
In addition, loans to creditworthy borrowers that have been restructured and are current won't be reclassified as "high risk" by regulators solely because the collateral backing them has declined to an amount less than the loan balance, the new guidelines state.
Critics say the new rules are yet another example of a head-in-the-sand approach by regulators, pointing to the relaxed accounting standards last year that enabled banks to avoid marking the value of the loans down. This is doing long-term damage to the economy, they say, because it ties up bank capital, preventing them from resuming lending.
globaleconomicanalysis.blogspot.com
regards
John |
