- change ups
For sale nice used 500 SL
Can you imagine a small support group of confident, type A, entrepreneurial, commercial real estate developers getting together to share their feelings and experiences?
We did. It was awkward at first, because we’re all so assertive and optimistic. It’s hard to even admit to challenges, let alone share them with your peers. But it helped. It’s an anonymous group of guys. We get together irregularly to cope with the stresses of bank pressure and to exchange information. Our stories are pretty much alike: We funded cash calls from our banks until it really hurt.
How does it work? There are a couple of different scenarios: The bank re-appraises your property. It comes in much lower than a couple of years ago because of declining property values, and the bank simply asks for additional equity.
“So, Mr. Developer, you would like to extend your loan? Sure, but the bank needs to reduce the project debt; bring the appraisal ‘in compliance.’ You know — federal regulations and all. Another $200,000 should do it — please collect from your partners.”
A second scenario is that you lost tenants and the rents coming in simply don’t cover your debt load. If your property is experiencing higher vacancy and cash shortfalls, the bank will simply ask you every single month to add cash to your account. We call it “the equity drum.” It’s a loud noise and hard to ignore, because your professional reputation is on the line. It gets pretty serious when you’re tapped out.
First you receive an attorney-prepared loan default letter by registered mail. The bank is threatening to foreclose and sue you on your personal guarantees. That’s a pretty big threat, because you worked for years to build credibility with this bank and in the business community. Isn’t the biggest compliment in the West Michigan business world: “He’s a straight shooter”? Certainly, a loan default is not part of that definition.
One of my developer friends took me to lunch in his daughter’s 10-year old Saturn. He is selling a nice used 500SL. When I called another former developer on his cell to offer support, he was working in his yard. He simply handed the keys to all his buildings back. “My family is well,” he said, “which is what’s most important.” When we hung up, I thought “How did this happen?”
I remember back in 2008 at the time of the full residential real estate crisis thinking, “We’re doing OK in commercial. It’s not going to affect us.” Owners of buildings still had tenants. Banks were lending money. We were safe, because lease expirations and loan renewals were out a few years.
Fast forward to June 2010 and active sellers of commercial real estate now are mostly banks. Banks took back many West Michigan commercial properties from their owners. They ran out of cash. And paradoxically, as commercial real estate brokers at Prime Development, we now survive and do well, because we have a thriving practice in full-service, one-contact property management and disposition of commercial real estate. Our clients: the banks. We sell properties for maximum value to investors who make “all cash” offers or can close quickly. Get them off the bank’s books.
Cash is king today and a few of our well-known local banks are experiencing losses from these real estate write-offs. They have decided for now to simply not lend money in commercial real estate at all. They are too busy getting rid of it. Loan departments at bigger banks are being gutted of people and loan officers make loans in name only. Most of them are engaged in work-outs, troubled loans and non-renewals. Some loan officers have gotten so discouraged, they’ve moved to credit unions and community banks.
This will all play out over the next few years and things will get better. Nationally, some financing is becoming available again. I was at a real estate conference in Chicago in mid-June and we heard some optimistic sounds from Fannie Mae and Freddie Mac. Government is no longer the single source of funding and lost some deals to the life companies. “Not in Michigan, though,” one of the speakers quickly added. The 500 SL is still for sale.
Marcel Burgler, CCIM, is principal, associate broker with Prime Development in Grand Rapids.