EVERMAY ESTATE IN GEORGETOWN

3/22/2010

Recession easing?

This article from the San Francisco Business Times looks at commercial real estate as a bellweather for good signs that the recession has bottomed and is reflected in increased activity in commercial real estate. Not a quick road back, but definitely on the rise. Here is the article in its entirety.

Banks see signs that recession is easing
San Francisco Business Times - by Mark Calvey

Bankers grappling with the worst of the commercial real estate crisis are seeing signs that the cycle has hit bottom.

That’s good news even as bankers are hit with painful loan losses and tougher regulatory requirements.

“The recession is over, and we’re now definitely in recovery,” said Mechanics Bank CEO Steve Buster. “The money that’s been sitting on the sidelines and waiting for two years is now moving into the market.”

“I see it every day,” Buster said, referring to investors calling his bank and other lenders seeking to buy troubled commercial mortgages and real estate as well as loan brokers with a growing book of business as more people with money are willing to finance distressed-real-estate transactions.

Other bankers echo Buster’s optimism amid the grim times.

David Greiner, CEO of Tri-Valley Bank in San Ramon, said his bank experienced a drop in non-performing loans in the fourth quarter for the first time in six months. In a promising sign for a banking industry that needs to heal, Tri-Valley Bank said this week that it’s being recapitalized with a $6 million investment that will eventually allow the $87 million bank to double in size. The money is coming from Robert Hirt, owner of Walnut Creek-based RPM Mortgage.

And J.P. Morgan Chase CEO Jamie Dimon, speaking at the Stanford Institute for Economic Policy Research’s 2010 economic outlook on March 12, said several more commercial-real-estate foreclosures lie ahead.

“But I don’t think this will stop America from recovering,” Dimon said. “When you think of real estate, you have the equity and I have the debt. When a foreclosure is over, I hold the equity.”

But the pace of foreclosures and loan losses will take their toll, especially on community banks that need to raise more capital or meet the ultimate fate of being shut down.

Several troubled banks nationwide are operating on borrowed time, with the Federal Deposit Insurance Corp. telling institutions to raise capital by a certain date or face closure.

Today’s 8,000 banks are likely to decline to 5,000 banks over the next five years due to failures and acquisitions, according to Gary Findley, president of the banking publication The Findley Reports. Findley was the keynote speaker at a March 11 distressed properties conference in Walnut Creek titled Fool’s Gold.

Today’s real estate cycle has followed a traditional pattern in which businesses hurt in the recession, shut down or negotiate better leases, which in turn hurts a building’s cash flow and market value. That, in turn, translates into pain for the banks that financed the real estate as borrowers have trouble repaying loans and refinancing existing debt on the building, which has fallen in value.

Buster, who was among the first Bay Area bankers to speak publicly about an approaching credit crunch in the fall of 2007, says he’s confident that we’re coming out of this real estate downturn.

“I’ve seen this movie several times before,” Buster said.

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