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There's also risk involved in taking possession of collateral. If you've written a loan such that collateral is 2x the loan amount, but then all potential buye
by nostrademons 7y ago
There's also risk involved in taking possession of collateral. If you've written a loan such that collateral is 2x the loan amount, but then all potential buyers of the collateral fall on similar hard times such that you have to sell it at 10 cents on the dollar, then you've still lost 80% of your loan value. Prices aren't static, and they reflect what's going on in the market at any given moment. If the market basically evaporates right as your loan comes due, then the value of your collateral isn't what it was when the loan was written, it was what it is when the loan defaults.
- caseysoftware 7y agoGood point. I bet that "prime retail space" in January is looking more like a liability than an asset right now. Thanks for getting me to be more pessimistic. ;)
- ashtonkem 7y agoRetail real estate doesn’t look anything like home real estate financially, which is why it does “weird” things compared to homes, such as leaving units empty for months in desirable areas. The core of it is how commercial real estate is financed; it’s financed on a rolling basis rather than a 1 time mortgage, like a home. This means that rather than revenue most commercial real estate owners are more concerned about what their next financing round will look like. For reasons I cannot explain, bankers care less about the rent a building does receive than they care about the rent it could receive. This incentivizes building owners to leave units empty rather than lower rates, as it actually ends up significantly cheaper for them in the long run.