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Banks usually lend out commercial loans at 50%~60% LTV. They get some cushion.

• mrDmrTmrJ 4y ago
  You're correct about LTV, but over 2020-2021 many buildings sold at 'cap-rates' of 2%. (A Cap rate is the yield on the building and effectively an inverse P/E ratio.) However, cap rates are now moving towards 4.5%-5% as interest rates went from 0%->4.5%. And we expect Cap rates to end up slightly higher than interest rates, say 5% or 6%. So when cap rates double the implied value of the building falls by 50%. Effectively the building goes from being valued at a P/E of 50 (cap rate 2%) to a P/E of 25 (cap rate of 4%). So the halving of the building's value, as cap rates move in response to interest rates, may mean that a 50% LTV loan is now underwater. Especially if the building is unoccupied or may soon be unoccupied.
  • ww520 4y ago
    If the buildings are priced at cap rate, that means they can be sold at market. The banks can just unload them.
    • lamontcg 4y ago
      Nobody wants to buy them.