The financial soundness of banks and accessible lending are important for the economy and for commercial real estate. The “if it bleeds it leads” headlines and clickbait like “doom loop” – referring to maturing loans – can lead to a lack of confidence. Chris Marinac joins show host Michael to share the real story with banks, and what to expect moving forward. The discussion covers various aspects of the current state of the banking industry and real estate market. The main points include:
1. Data and Information Sources: The conversation mentions the use of Tre data, a service that provides information about lending. It emphasizes the importance of having accurate and detailed data to understand the real estate market and banking system.
2. Challenges in the Banking System: There’s a discussion about the challenges faced by banks, especially related to loans outside the banking system. The speaker suggests that there might be a significant number of loans outside traditional banking that need to be addressed separately.
3. Context of Real Estate Loans: The speaker highlights that not all real estate loans are problematic, and there are borrowers trying to adapt to changing circumstances. The context of each loan, such as demand, needs, and changes in usage, should be considered.
4. Buying Power in the Marketplace: The conversation notes the presence of buying power from new players, such as family offices and private funds, taking advantage of opportunities when prices drop.
5. Example of Capital One: An example is provided where Capital One sold $900 million of office loans, and the actual losses were less than initially assumed. This illustrates the importance of having real data and not relying solely on assumptions.
6. Recognizing Losses and Restructuring: The speaker mentions the importance of recognizing losses and restructuring, drawing a parallel to strategies employed in the past, such as during the RTC days in the early ’90s.
7. Bank Assertiveness in Recognizing Issues: The speaker praises certain banks like Bank of America and Truist for being assertive in recognizing issues related to office loans. The assertion is made that banks have been more proactive in dealing with problems compared to investors.
8. Banking in 2023-2024 vs. 2008-2009: A comparison is made between the banking industry’s response to issues in 2023-2024 and the challenges faced in 2008-2009. The speaker suggests that banks have been more assertive and effective in addressing problems.
9. Bankruptcy Data: The conversation touches upon bankruptcy data, noting a reported increase in Chapter 11 bankruptcies. However, it emphasizes the need to consider a longer-term perspective and highlights that bankruptcy levels are still significantly below historical levels.
10. Banking Behavior and Liquidity: There’s a discussion about changes in banking behavior, increased liquidity, and how banks are better equipped to handle issues. The speaker notes that liquidity has been positively impacted by government stimulus checks and programs.
11. Deposit Behavior and Loan Contracts: Banks are mentioned to be requiring more deposits, with some introducing loan contracts tied to maintaining certain deposit levels. This behavior is seen as a positive change.
12. Behavior Change in Banking: The conversation underscores the shift in behavior within the banking industry, including better detection of issues and improved problem-solving approaches.
13. Short Sales and Loan Sales: The discussion acknowledges that short sales and loan sales are active, with banks willing to work through problems without resorting to foreclosures.
14. Expectations for Banks in 2024: The speaker expects banks to become more active in lending once regulatory uncertainties regarding capital rules are clarified. The importance of having a bank relationship for small businesses is emphasized.
15. Loan Growth Expectations: While overall loan growth is expected to be modest, the conversation notes that smaller and midsize banks might have more significant loan growth as they pick up the slack left by larger banks.
16. Opportunities for Banks: The speaker sees opportunities for banks to make safe loans, build relationships, and grow their businesses, especially by attracting new customers through lending.
Overall, the conversation provides insights into the current dynamics of the banking industry and real estate market, highlighting positive aspects and dispelling concerns raised by certain media narratives. Though Miami commercial real estate exists in a parallel universe without the stress other markets are perceiving, developments around the country can nonetheless affect financing, which is of concern to all investors, including those in Miami and the rest of South Florida.