I’ve been extremely skeptical of the idea of government aide to the commercial real estate industry. So I’m passing on this note from TPM Reader KS, who makes the contrary case. The key point to me about KS’s argument is how much turns on the fact that the bailed out banks aren’t using the TARP funds for lending, which remains perhaps the greatest scandal of the whole bailout saga …
As a commercial real estate attorney, I’m deeply involved with the current complete freeze-up of the commercial lending markets. I have many clients who have sound business practices in the development of commercial real estate.
Suddenly, and coinciding with the Lehman/Goldman fiasco, the commercial lending markets completely disappeared. Not just a slow down, but a complete and total shut down. Loans for which there were commitments were suddenly pulled. Term loans (most in the development world are for 1-2 years at a time) were suddenly not available for renewal putting borrowers in immediate default, or the lender required severe principal reductions in order to for the borrower to renew – severe to the point of not possible.
I’m not talking about over-speculative developers here asking for a bail-out. I’m talking about fiscally responsible developers, on-time payors with pared down staffs, who wrongly believed that the TARP funds going to the major banks would be put into circulation in the credit markets for new loans and renewals, which are the life-blood of the real estate industry. One bank had the temerity to tell me on a conference call that they were using the TARP funds for acquiring other banks, not for new loans or renewals.
And here lies the problem with the Paulson/Bernacke/Frank plan…they once again trusted the banks “to do the right thing”, (a la Greenspan), without requiring that the TARP funds go right back into the lending stream through the conduit of the banks. I’m not socialist, but I sure would agree for a Bank of US to come out of this mess. This is happening today, and the warnings are clear, and the results will be catastrophic.
