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Yet more evidence that nominal real estate prices will not be permitted to fall further, ever, no matter what the real economic cost. (As an added bonus, even more fees for Goldman! 
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Congressman proposes loan guarantee program for smaller CRE
U.S. Rep. Walt Minnick, D-Idaho, on July 21 outlined some details for a proposed government loan guarantee program that is expected to be in the $15 billion to $25 billion range and aimed at jump-starting sales for lower-end commercial real estate properties.
Speaking at the U.S. Chamber of Commerce's The State of Real Estate conference in Washington, D.C., Minnick painted a dire picture for the future of commercial real estate, smaller community banks and the overall economy unless the government takes action. Without any sort of intervention, Minnick said 2,000 to 3,000 commercial banks could be seized or go bankrupt over the next three years, racking up losses in excess of $800 billion for the FDIC.
"I think we have a real storm cloud on the horizon that we must politically, and as a country, deal with in order to have a continuing recovery and avoid a double-dip recession and perhaps a triggering incident for the type of financial collapse that has happened in Greece," he said.
To avoid such a fate, Minnick urged the audience to rally support for legislation he authored. The proposal, which has not yet been introduced to Congress, would offer a U.S. Treasury Department guarantee for loan packages backed by small commercial real estate properties.
The loan products, which would be put together by big-money banks such as Goldman Sachs Group Inc. or Morgan Stanley, would have to carry an investment grade rating and be composed of properties worth less than $10 million. The Treasury would guarantee the loan packages for a 2% fee of the loan principal, and borrowers would be expected to pay minimum pricing of 350 basis points above the 10-year Treasury rate.
Minnick projects that the program would turn a profit for the government and become obsolete after sparking liquidity in the lower-end commercial real estate sector, convincing lenders that enough demand exists for such properties.
Minnick's talk at the Chamber of Commerce followed a presentation by Jennifer Kitchen, senior vice president of research at CoStar Group, who painted a rosy picture of an impending recovery in commercial real estate. Minnick was less optimistic, clarifying that Kitchen's talk of increasing sales volume and compressing capitalization rates applies solely to large, trophy assets. Smaller properties are struggling to find financing, he said.
"What we want to do is provide a way for a good loan to be aggregated with other, similar, smaller loans, put into a package ... wrapped with a guarantee and sold then to the institutional markets," Minnick told SNL following the conference.
He further elaborated that the program will focus on adding liquidity to small commercial properties. By extension, the program aims to spur demand and buttress what he called artificially low prices on lower-end commercial real estate, such as shopping centers in tertiary markets.
The proposal is set to be explored during a July 29 committee hearing, Minnick said. He expects the Treasury to support the legislation and testify for its passage. Also, he said the bill will have bipartisan support, with several co-sponsors from both sides of the aisle. Some of the co-sponsors are Mike Simpson, R-Idaho; Steven LaTourette, R-Ohio; Heath Shuler, D-N.C.; and Suzanne Kosmas, D-Fla. Minnick's office is still in negotiations with other co-sponsors.
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Congressman proposes loan guarantee program for smaller CRE
U.S. Rep. Walt Minnick, D-Idaho, on July 21 outlined some details for a proposed government loan guarantee program that is expected to be in the $15 billion to $25 billion range and aimed at jump-starting sales for lower-end commercial real estate properties.
Speaking at the U.S. Chamber of Commerce's The State of Real Estate conference in Washington, D.C., Minnick painted a dire picture for the future of commercial real estate, smaller community banks and the overall economy unless the government takes action. Without any sort of intervention, Minnick said 2,000 to 3,000 commercial banks could be seized or go bankrupt over the next three years, racking up losses in excess of $800 billion for the FDIC.
"I think we have a real storm cloud on the horizon that we must politically, and as a country, deal with in order to have a continuing recovery and avoid a double-dip recession and perhaps a triggering incident for the type of financial collapse that has happened in Greece," he said.
To avoid such a fate, Minnick urged the audience to rally support for legislation he authored. The proposal, which has not yet been introduced to Congress, would offer a U.S. Treasury Department guarantee for loan packages backed by small commercial real estate properties.
The loan products, which would be put together by big-money banks such as Goldman Sachs Group Inc. or Morgan Stanley, would have to carry an investment grade rating and be composed of properties worth less than $10 million. The Treasury would guarantee the loan packages for a 2% fee of the loan principal, and borrowers would be expected to pay minimum pricing of 350 basis points above the 10-year Treasury rate.
Minnick projects that the program would turn a profit for the government and become obsolete after sparking liquidity in the lower-end commercial real estate sector, convincing lenders that enough demand exists for such properties.
Minnick's talk at the Chamber of Commerce followed a presentation by Jennifer Kitchen, senior vice president of research at CoStar Group, who painted a rosy picture of an impending recovery in commercial real estate. Minnick was less optimistic, clarifying that Kitchen's talk of increasing sales volume and compressing capitalization rates applies solely to large, trophy assets. Smaller properties are struggling to find financing, he said.
"What we want to do is provide a way for a good loan to be aggregated with other, similar, smaller loans, put into a package ... wrapped with a guarantee and sold then to the institutional markets," Minnick told SNL following the conference.
He further elaborated that the program will focus on adding liquidity to small commercial properties. By extension, the program aims to spur demand and buttress what he called artificially low prices on lower-end commercial real estate, such as shopping centers in tertiary markets.
The proposal is set to be explored during a July 29 committee hearing, Minnick said. He expects the Treasury to support the legislation and testify for its passage. Also, he said the bill will have bipartisan support, with several co-sponsors from both sides of the aisle. Some of the co-sponsors are Mike Simpson, R-Idaho; Steven LaTourette, R-Ohio; Heath Shuler, D-N.C.; and Suzanne Kosmas, D-Fla. Minnick's office is still in negotiations with other co-sponsors.
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