The operating margins on these local lenders aren’t large enough to sustain $1,000,000 losses, so you can imagine that it doesn’t take much in the way of exposure to create some really devastating problems.
I often look at some of these commercial condo projects that are springing up all over the place and marvel at the fact that in each case some appraiser developed and supported in their appraisal report an absorption analysis that projected how long it would take to complete the project, market it and get out.
What I find annoying is the fact that the commercial condo market has been around for a while and compared to other property types it was always a bit of a dog. Given the alternatives, most small companies that would occupy such a space could only justify it if the prices were in line with the rents, and over the long haul a $0.90/SF rent doesn’t economically support a sale price in excess of $100/SF. Duh.
Fortunately for me, I was smart enough not to allow myself to get caught up in these unrealistic projects. I lost some clients to other appraisers who were more “cooperative”, but now I don’t have to worry about the federal banking regulators associating my name with those bad deals.
