Everyone was expecting fire-sale prices on commercial real estate. But it doesn't seem to be happening on the grand scale some were predicting. Many commercial properties that have been foreclosed on are being leased instead of being sold at fire-sale prices.
“All the banks are taking haircuts (losses) now, but in stages,” one banker stated. “Most banks don’t have the capital to absorb sizable losses all at once, so they are holding onto their commercial real estate to stagger the losses.”
The smaller the bank, the harder it is to absorb the loss from selling depressed properties.
The FDIC only allows banks to hold on to properties for 5 years, although banks can request extensions. During this period, banks must offer a plan to dispose of their real estate assets.
FDIC real estate assets are growing as the FDIC continues to take over insolvent banks.
Most large assets seem to be gobbled up by the REITS, which have a clear advantage over individual investors.
However, individual investors are having some success financing assets of up to $3 million through the federal government’s Small Business Administration (SBA) loan programs, like the 7(a) and 504 loans.