Did the FDIC just flash freeze the Distressed Commercial Markets

We are all waiting for the backlog of distressed and foreclosed commercial properties to thaw out a little and become available for purchase at the steep discounts only a recession can cause. Things have been frozen for a while …

• Lenders not wanting to write down the value of their portfolios to acknowledge the drop in value … especially if the property is worth less than the loan … Ouch!
• And no lenders willing to loan new money on purchases of distressed assets

AND we have been under the assumption that once lenders are willing to accept the losses and new money becomes available to purchase distressed properties … this whole mess would thaw. Then we could snap up performing assets at once-in-a-lifetime prices.

BUT WAIT … the FDIC may have just thrown the whole system back into the deep freeze. Globe Street’s Tony LoPinto reported yesterday that the FDIC has made some rule changes deep underground in their infrastructure that could significantly delay the thaw in this frozen market of distressed commercial real estate. Here is a quote:

“The FDIC has just issued guidelines allowing banks to keep loans on their books as “performing” even if the value of the underlying properties has fallen below the loan amount. The guidance, issued by the FDIC, Office of the Comptroller of the Currency, and the Federal Reserve will allow examiners and financial institutions to work with commercial property owners who are “experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or commercial properties”.

With the banks’ restructuring loans, the transactional grease from properties being dumped on the market at fire sale prices isn’t going to happen, leaving the distressed funds and brokers to find something else to do–at least for the time being. “

Here is the full article

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