The subprime housing mess gets all the headlines... for now. We all know the unfortunate story -- some predatory and not so predatory residential lenders made highly questionable loans to people who didn't understand the terms or economics and can't keep up with payments since home values stopped skyrocketing. Cheap debt fueled the process and everyone gorged on fee volumes -- brokers, appraisers, bankers, securitizers, and rating agencies. Some high profile CEOs get the boot in the wake of large writedowns. But come on, we all know over-the-top borrowing and blind lending occurred to some degree through the entire real estate marketplace and in fact extended across the spectrum of finance markets.
For starters, easy money and fee-for-all lending also went up the food chain to many "more sophisticated" (more affuent) residential borrowers who took out large home equity loans to finance spending sprees or home additions. And how many of your friends traded up, buying new homes or second homes with jumbo mortgages, taking on more debt service and chancing adjustable rates? That new beach house on the water may not look like such a great buy anymore.
And who thinks the commercial property market can escape the looming hangover from recent vintage loan bacchanalia with its own version of loosey goosey underwriting, resembling subprime without the predatory aspects? Up until the summer, commercial lenders were serving up a feast of interest only, covenant light terms, employed superficial due diligence, swallowed polly-anna proformas and cozied up to weak credit. More than a few recent investments submerge under negative leverage with dimming prospects for meeting overly optimistic revenue projections. Unless the economy shifts into higher gear, some of these questionable loans could sour quickly.
For now, everyone conveniently can lay the blame on subprime... for now.
Can commercial property markets escape their share of defaults and foreclosures given recent licentious lending practises? What do you think?
© Miller Ryan LLC 2007
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
