Commercial Real Estate Lobby Ask For Taxpayer Aid To Help Recapitalize Banks Saddled With Billions In Underwater CRE Loans

Tyler Durden's picture

The problem that nobody is talking about, yet everyone continues keeping a close eye on, namely the trillions in commercial real estate under water, is quietly starting to reemerge. In the attached letter from the Commercial Real Estate lobby, it reminds politicians that the hundreds of billions in loans that mature in the next several years won't roll on their own, and we see the first inkling of the lobby asking congress for much more taxpayer aid, in this case in the form of Shelley Berkley's proposed legislation to "enable banks to convert troubled loans into performing assets through modest tax incentives to attract new equity capital to existing commercial real estate projects." The letter tacitly reminds that there are thousands of regional banks whose balance sheets are chock full with underwater commercial real estate (and for the direct impact of this simply observe the 100+ banks on the FDIC's 2010 failed bank list). So in case taxpayers are wondering where the next fiscal stimulus will end up going, wonder no more: "The new investments would be specifically used to pay down debt,
resulting in lower loan-to-value ratios of existing loans as well as
improved debt coverage ratios
." As the CRE lobby concludes: "By giving lenders the ability to responsibly refinance debt and
rebalance capital reserve levels, the CRE Act will provide the
opportunity for additional lending capacity that will help stimulate
lending to small businesses, job formation and economic growth in
communities across the country." In other words, it is time for taxpayers to help purge banks of existing toxic debt, so that these same banks can resume lending like drunken sailors, in unviable commercial real estate projects just to guarantee that the next major market blow up also destroys the regional banking system, in addition to the TBTFs.

Full letter below:

Commercial Real Estate Industry Groups' Letter to Members of Congress on Community Recovery and Enhancement Act (H.R. 5943)

The undersigned commercial real estate industry associations strongly support the Community Recovery and Enhancement Act (CRE Act), important legislation introduced by Congresswoman Shelley Berkley to help incentivize equity investment in distressed commercial real estate assets and to address the pending crisis threatening community banks that currently hold significant real estate debt on their books.

According to the February 11, 2010 report by the Congressional Oversight Panel on the Troubled Asset Relief Program, small and mid-sized banks will bear the brunt of coming losses on commercial real estate loans. The report found that nearly 3,000 banks have concentrations in commercial real estate loans, including 2,115 banks with $100 million to $1 billion in total assets. Banks hold $1.5 trillion, or 45 percent, of the $3.4 trillion of commercial real estate debt in the U.S.

We believe that the CRE Act is a thoughtful and targeted solution to the current credit crisis in commercial real estate. This legislation will enable banks to convert troubled loans into performing assets through modest tax incentives to attract new equity capital to existing commercial real estate projects. The new investments would be specifically used to pay down debt, resulting in lower loan-to-value ratios of existing loans as well as improved debt coverage ratios. Importantly, the CRE Act relies upon market factors and economic incentives, rather than direct government involvement, to determine winners and losers.

Under this temporary tax incentive proposal, qualifying investments must be made before 2013 and only applies to assets purchased before 2009. At least 80 percent of the newly invested project capital must be used to reduce the outstanding balance of debt on the asset, with the balance going toward capital improvements, such as energy efficiency enhancements or leasehold improvements to attract new tenants. The new investment would qualify for a one-time 50% bonus depreciation and investors would be able to deduct any losses associated with the qualifying investment without regard to the passive loss limitations under Section 469 of the IRS Code.

We believe that this proposal has been carefully crafted and will help rebalance the debt vs. equity equation plaguing the commercial real estate and community banking industries. By giving lenders the ability to responsibly refinance debt and rebalance capital reserve levels, the CRE Act will provide the opportunity for additional lending capacity that will help stimulate lending to small businesses, job formation and economic growth in communities across the country.

Signed,

International Council of Shopping Centers
National Multi Housing Council
National Apartment Association
National Association of Realtors®
Institute of Real Estate Management
CCIM Institute
Associated General Contractors
Society of Industrial and Office REALTORS®

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firstdivision's picture

Welcome to the dinner party after all that is left are scraps. 

johngaltfla's picture

Dear Undercapitalized Banks,

F

U

Sincerely,

The American Taxpayer

-Michelle-'s picture

If only.  The letter is more likely to read:

Dear Undercapitalized Banks,

On behalf of The American Taxpayer, we are happy to inform you that...

firstdivision's picture

you have been pre-approved to rape and pillage to your hearts content at the introductory rate of 0% for the long foreseeable future...

Sudden Debt's picture

Dear Undercapitalized Banks,

THIS IS YOUR LUCKY DAY! You are the 1000.000 applicant and therefore you shall receive the unlimeted bailout!

Just fill in the coupon at the bottom and you'll receive 50% more then you requested with ZERO interest payments!!!

Hughs and kisses,

The Fed

 

ps: I you refer to us to friend and family you'll receive 1 lot of 20 bonds we've bought in the last year free of charge!

Jeff Lebowski's picture

Oh, to only have a time machine so that I might avoid SRS like the plague that it is...

I especially liked this excerpt:

This legislation will enable banks to convert troubled loans into performing assets

To whom do I address my letter? I, too, have a troubled loan - my mortgage, now underwater.  I'd like to turn it into a performing asset of my own...

Sudden Debt's picture

put some camera's into the house, 20 asian hookers, take a box of viagra  and post the movies on the internet. I don't know how much money you'll make but I bet you'll forget all about your morgage :)

 

chinaguy's picture

Awww pleeeze, you bailed out the other guys.....Lookie, we have lobby money & campaign contributions for you too!

Sudden Debt's picture

I'm sorry, we have principles to. You can only have 1 billion for every dinner seat at the campaign tables for 1000$. The American voters wouldn't except anything less.

Downtoolong's picture

I live in northern NJ, land of the strip mall. Almost evey one of them has vacancies, some as high as 40%. But, the real mystery to me is this: they keep building more or them. They started clearing land for another one near my house two weeks ago.

 

scatterbrains's picture

FAIL already, these fools don't see that peeps with money are feeling guilty about their consumerism during the last decade and collectively are making it a point to be frugal so they can feel less selfish while half the neighborhood is out of work.  I sense it will be the new fad.. look how humble I am, I didn't do this and didnt do that this week go the conversations and feel good pats on the back.

Blankman's picture

Here is another idea for the politicians:  Allow the newly homeless to live in these abandoned or empty commercial buildings.  Give the owner a tax break along the lines of $400 per person (with max occupancies obviously).  Turn the parking lots into a vegetable garden, cut welfare/food stamps drastically, force these people to live off what they are given.  See what happens.  I think most people will be alright once they begin to believe in themselves again.  For too many years people have been taught to believe in everything but themselves, that needs to change.  WWII did that for that generation.  WWIII, the current financial war, hopefully teaches that to our current generation. 

docj's picture

That's pretty much the case here in Suburban Boston, as well.  Though lately it's been about "big mega-centers" (Patriot's Place in Foxboro, the Orwellian-name-inspired "Legacy Place" in Dedham, and there were several more in the works when their world ended in 2008).

They're all the same, all pretty dreadful.  And they're going to keep going up so long as Uncle Sugar can keep the much abused US Taxpayer on the hook for any and all losses.

honestann's picture

Well, of course you're correct to say "it makes no sense"... in a rational world.  However, no way is the current state of affairs rational.

Here is the thinking process that convinces idiots to borrow and lend for "yet-another-mega-shopping-mall project".  It is a bit like musical chairs in reverse... sorta.

First, note that interest rates today are just about as low as they will ever get.  Therefore, if you borrow now, you lock in the lowest rate ever, and lower than your competitors.

Second, the real (not "talking") economy continues to tank, so the predators-that-be (government, FederalReserve) will probably continue to bail out big borrowers.  If you're developing a BIG project, that includes you.

Third, banks simply cannot afford to admit their huge loans are in default... and the government encourages the banks to ignore non-payment and leave the loan on the books at full value (as if everything went right).  This is the same reason the banks let home-owners not pay for 1 ~ 2 years or more before they foreclose.

Fourth, everyone knows the elephant in the room will eventually go berserk when the economy crashes further and worse (and/or the debt spiral become utterly unsupportable even with lies, games, fiction and fantasy.  At that point, the fed will "print" fiat money like Zimbabwe on steroids to attempt to juice the economy big-time, and inflate away their debts.  Well, that includes YOUR debts for the monster shopping mall you constructed, so you'll be able to pay off the entire loan in one year at one penny on the dollar... or less!

So, you see, it makes *perfect sense* to build huge new fancy shopping malls right now.  It really does.  Which shows how utterly insane and corrupt the government and economy of the USSA has become.  Even when the economy stays in the crapper for years and decades, you will still make a nice fat profit, because you will have paid off all your loans and every penny you receive will be profit (outside of some unavoidable minor mantainence).

I'm not saying anyone *should* do this.  I wouldn't, because I refuse to live a dishonest life, no matter how much benefit I could realize for taking advantage of the dishonesty and corruption offered by the predators-that-be.  But I am saying "it does make sense".

The only downside for someone trying this is... if your timing is off too far (unlikely at this point).  Then you hang on as long as you can, hoping it pans out for you before they foreclose (that would be years and years and years the way things are going now).  But if your timing is soooo far off that they foreclose, you just walk away and collect unemployment, food-stamps, whatever.  Plus you can hide some gold while you're waiting for success, and have that around to augment what you get on the dole.

How is the above worse than "just giving up" or trying to switch to some honest, productive endeavor?  Only if you have a shred of honesty, ethics or honor would you not build new shopping malls now.  It's the "perfect" time.

Yeah, I know.... sheesh.

Oswald Spengler's picture

The undersigned believes the public interest would best be served if insolvent businesses, individuals, GSEs and other underwater entities were allowed to fail.

Very truly yours,

Oswald Spengler

Caviar Emptor's picture

Print, baby, Print!

johngaltfla's picture

We kill zombies in the movies.

In our bizarro universe we buy them hookers and Ferraris.

In our bizarro universe the zombies receive taxpayer dollars so the bonus programs live on while the communities end up eating the shit sandwiches when they have to use Eminent Domain to condemn and bulldoze the properties after so many years of crack whores and rats infesting their empty shells.

 

MarketTruth's picture

Small and medium banks will suffer because they are not part of the members who help/own an interest within the private central bank Federal Reserve. Small banks are not huge counterparties/risk to members of the Federal Reserve (as AIG was). So does the Fed contract the money supply like they have done before to cause massive problems and then swallow up a larger slice of the overall pie or does the Fed QE and thus continue their plan of 'hidden taxation' in making the Federal Reserve Note (US Dollar) devalue further? Either way, it is time to end the Federal reserve as they admitted to illegally purchasing over $1,200 billion of (now devaluating) 'investment' paper of Freddie/Fannie. As this action breaks the law. the Fed's charter should be immediately revoked.

Of course assassinations would surely follow at any real move to revoke the Federal Reserve's central bank charter. Such murders have been done by the Fed quite a few times during the history of the Rothschild's central banking scheme in their quest to dominate control.

RE and CRE are just a continuation of problems caused by the central bank, yet the real question is: What is their 'end game'?

dcb's picture

I suggest taking a look at goldman's commercial real estate holdings. reggie middleton had something about it a long time ago. I knoew it would happen then

MarketTruth's picture

Thanks for the tip.

BTW, more States need to open/run their own banks, separate from the Federal Reserve. Dakota has done this with great success.

.

PhotonJohn's picture

I have a problem with any bank that has the ability to control the money and collect money from its citizens. How about just "End The Fed" and the bailouts?

Rainman's picture

Yeah, I can just visualize California running its own bank, especially if Jerry Brown becomes the new Guvernator. The ATMs will spit out IOUs.

MachoMan's picture

I think you're going to see more money/effort put towards shutting these local/regional banks down (putting them out of their misery).  When the TBTF got the initial backstop, it caused an instant panic from small/regional banks into the TBTF because everyone expected they'd be backed no matter what...  the reasoning was as sound then as it is now...  nothing has changed.

At the time, there was widespread speculation that the local/regional banks would be fed to the TBTF in an effort to prop up/counterbalance the TBTF balance sheets.  The dead fed intravenously to the living.  This has already started...  some of the regionals who are lucky enough to get a spot at the trough have dramatically increased profit margins through consolidation of shitbird locals for pennies on the dollar.  This process is going to continue...  further insulating the TBTF from break-up... 

If the consolidation does not keep the entities alive (including the FED), then their principal actors will be able to feed on the carcasses in the ultimate consolidation.  This is what happens with the wealth gap.

Ragnarok's picture

All is well.  Woosaaa. Woosaaa.

Samsonov's picture

It appears possible to print unlimited quantities of money without any adverse effects whatsoever.  That being the case, there is no reason for the government to not pay off all bad debts with new money.  No reason to not pay all debts with new money.  Furthermore, there is no reason to levy taxes: funding of government expenses can be entirely with newly printed money.  Perhaps it won't work, but it's worth a try.

Trundle's picture

Tell me you wouldn't want to see Trump get a haircut!

ZackAttack's picture

A scalping would be a vast improvement for that guy.

I just marvel... a billionaire who chooses to look like he's wearing the matted ass-hair of an orange tabby cat.

Village Idiot's picture

I am sensing cynicism in this thread.

RockyRacoon's picture

See?  You are not an idiot as advertised.  Your sense would be right.

Community Recovery and Enhancement Act (CRE Act)

Don't you just love the "community" aspect of this big-boy bailout?  Who could refuse help to the "community"?  That would be a community of rich guys about to become poor guys.

Good riddance, and I know a few of them.   So what.  Every one I know is a cut-throat sociopath.

marc_hanes's picture

"Community Recovery and Enhancement Act"

In the strong sense, WHO came up with this name? S/he must be someone's neighbor, son/daughter, parent, fellow lodge member, whatever. As I have for too many years rhetorically asked myself, who knows this fact [s/he came up with this bullshit] and condones continuing relations with said individual?

I do so long for the days of productive shame. If someone does not have the innate sense of right and wrong, there is nothing naturally abhorrent about external forces teaching them the lesson.

mark mchugh's picture

Amen.

(I think that's what you're supposed to say when somebody throws a "Hail Mary" pass)

anony's picture

I'm pretty sure Howdy Doody was a puppet.

Cursive's picture

Whatever happened to the EMH bullshit?  You know, the lassez-faire line spewed by "free Market" advocates that the Market is all knowing and self-correcting?  Where are these asshats?  Art Laffer?  When do any holders of SRS (which is down this morning on this wonderful news, BTW) get a bailout for trying to live in economic reality?  This is how the Market dies.

 

reading's picture

It's already dead they just haven't pulled the plug on life support.  It's only the machines breathing for the patient now.

Blankman's picture

"the CRE Act will provide the opportunity for additional lending capacity that will help stimulate lending to small businesses, job formation and economic growth in communities across the country."

It sounds to me like the typical political cat call of "What about the children", instead its "What about the small business".  What a load of shit.  This bill will not increase small business lending, job formation or any form of economic growth.  All it will do is allow banks to breathe one more breath before round two of the residential mortgage implosion kicks in next year.  Same dance next year.

vote_libertarian_party's picture

This bail out will be an amendment to an amendment to a military bill so nobody will vote against it.

Caviar Emptor's picture

QE2 or, literally, bust. Bust for CRE and regional banks, bust for states and pensions, bust for equity mutual funds, bust for for stock indices, bust for GM IPOs, bust for discretionary spending and retailers.....

And no chance that the solution will be cutbacks, austerity, belt tightening, taxes, low growth and nose to the grindstone. This is the Me Generation we're talking about. Plus the entitled, jaded offspring of the Me Generation who fully expect that the Money Tree is their birthright. We are all too big to fail once we get full enough of ourselves!

StychoKiller's picture

Sorry, the gravity of a black hole does indeed suck, but it's a law of Nature -- Congress (and the Fed) cannot violate law(s) of Nature (for very much longer!)

QQQBall's picture

The looting in broad daylight continues.

twotraps's picture

What would a bank do?  What would Goldman do?? They would lend to anyone that needed it under the CAT program....Crazy-Ass-Terms.  Need a loan, simple, what have you got?  What can you pay?  What kind of collateral do you have?      Unfortunately, most people had previously earned an exemption to CAT program through an effective lobby campaign, so although the program exists for this very purpose, it will not be enforced and someone will get free money for their problems.  One more example of the entire govt/economy revealing itself as a complete circus.

old_turk's picture

This legislation will enable banks to convert troubled loans into performing assets through modest tax incentives to attract new equity capital to existing commercial real estate projects.

 

And where, pray tell, is the source of this 'new equity capital'?  China?  Middle East?

 

Please.  No one throws cash down a rat hole, excepting the Fed.

QQQBall's picture

Dear,

International Council of Shopping Centers
National Multi Housing Council
National Apartment Association
National Association of Realtors®
Institute of Real Estate Management
CCIM Institute
Associated General Contractors
Society of Industrial and Office REALTORS®

 

Get off your fucking knees!

 

Signed,

QBz

Rogerwilco's picture

Given the sad situation and looming collapse of property values, I wondered why the CRE people were so quiet. This explains it -- a slimy-ass amendment, and my Congressman will vote for it.

TuesdayBen's picture

I'm about done sharpening the final tine.

ella's picture

Social the debts and privatize the profits... The rich love American socialism.  What a farce.  And to top it all off while they suck out taxpayers dollars, they refuse to pay a reason tax. 

dark pools of soros's picture

i like the idea of a 'reason tax'

 

 

mark mchugh's picture

To expand our your thought, Social the debts and loot the society.  It's not even worth pretending any of this is profitable anymore.