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Why would a bank give a "non-recourse" loan for commercial property? Doesn't make sense to me.
by sparrish 3y ago
Why would a bank give a "non-recourse" loan for commercial property? Doesn't make sense to me.
- rfgmendoza 3y agocommercial real estate was considered extremely safe, and competitive, so such deals were a way to build trust in commercial tenants and compete with other banks. it was considered safe because a commercial tenants was likely trying to run a stable business and moving location is very expensive, so it was unlikely for a business to want to change location on a whim.
- failuser 3y agoReal estate, especially prime commercial real estate was a sure bet for a while. If a company can’t service the debt the bank gets a valuable asset. It might be not so valuable with work from home taking hold. I still doubt the whole scenario. I hope some emergency regulations to turn empty commercial real estate into housing is passed, I know it’s not ideal, but it’s not impossible.
- nocoiner 3y agoThe loans are non-recourse to the developers, so while they might have to turn over the keys to the property at the end of the day, the bank isn’t coming after them for their other projects or personal assets. A busted deal isn’t a happy outcome for a real estate developer, at all, and they lose whatever equity they invested on the project, but non-recourse debt protects them on the downside and they make their real money on the successful deals.