[investor]

[quote=davelj]I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.[/quote]

I agree. I don’t agree with the way commercial loans tend to be non-recourse, only that that has been the way it has been done for along time. This does raise the values artificially for commercial properties and a new full recourse system would mean a big adjustment in their values initially. I’m not opposed to this, only saying the current bubble that commecial is in is now blowing up and will for the next 3 years or so. This is one reason why i am not in agreement that the economy/housing will be better in the near future.

[investor]

[quote=davelj]I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.[/quote]

I agree. I don’t agree with the way commercial loans tend to be non-recourse, only that that has been the way it has been done for along time. This does raise the values artificially for commercial properties and a new full recourse system would mean a big adjustment in their values initially. I’m not opposed to this, only saying the current bubble that commecial is in is now blowing up and will for the next 3 years or so. This is one reason why i am not in agreement that the economy/housing will be better in the near future.

[investor]

[quote=davelj]I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.[/quote]

I agree. I don’t agree with the way commercial loans tend to be non-recourse, only that that has been the way it has been done for along time. This does raise the values artificially for commercial properties and a new full recourse system would mean a big adjustment in their values initially. I’m not opposed to this, only saying the current bubble that commecial is in is now blowing up and will for the next 3 years or so. This is one reason why i am not in agreement that the economy/housing will be better in the near future.

[investor]

[quote=davelj]I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.[/quote]

I agree. I don’t agree with the way commercial loans tend to be non-recourse, only that that has been the way it has been done for along time. This does raise the values artificially for commercial properties and a new full recourse system would mean a big adjustment in their values initially. I’m not opposed to this, only saying the current bubble that commecial is in is now blowing up and will for the next 3 years or so. This is one reason why i am not in agreement that the economy/housing will be better in the near future.

[investor]

[quote=davelj]I suspect that most CRE loans do not have guarantors behind them. In most cases, the principal source of repayment is the property’s cash flow and the secondary source is liquidation of the collateral. And unfortunately most banks leave it at the primary and secondary sources of repayment (which are required by regulation).

There are plenty of banks, however, that do require guarantor support (that is, an unlimited personal guarantee from the guarantors) as a tertiary source of repayment. The two banks of which I’m a director make very few CRE loans without unlimited guarantor support. The only loans that we’d consider waiving that requirement would be cases in which the LTV was less than 60% and/or the borrower held high deposit balances with the bank, and even then it would be unusual.

In my view, underwriting CRE loans without guarantor support is unsound. But that’s a minority view… and one reason why we are in the mess we’re in.[/quote]

I agree. I don’t agree with the way commercial loans tend to be non-recourse, only that that has been the way it has been done for along time. This does raise the values artificially for commercial properties and a new full recourse system would mean a big adjustment in their values initially. I’m not opposed to this, only saying the current bubble that commecial is in is now blowing up and will for the next 3 years or so. This is one reason why i am not in agreement that the economy/housing will be better in the near future.

[investor]

Kingside. Just got off the phone with finance at marcus and millichap. They are still making non-recourse loans without personal guarentees, especially in apartments. There is no difference in california. I don’t know if the % is changing with the impending baloon payments from the peak from 2005 or not. In regards to another blogger who commented that commercial borrowers are wealthy peolpe who should morally pay the loan off, in a perfect world I agree. As I have said though, the history of commercial loans is that a significant number have historically been non-recourse so buyers have come to expect that, with the market values reflecting the increased demand for commercial properties as a result of the less risky loan to the borrower. Back to work I go….

[investor]

Kingside. Just got off the phone with finance at marcus and millichap. They are still making non-recourse loans without personal guarentees, especially in apartments. There is no difference in california. I don’t know if the % is changing with the impending baloon payments from the peak from 2005 or not. In regards to another blogger who commented that commercial borrowers are wealthy peolpe who should morally pay the loan off, in a perfect world I agree. As I have said though, the history of commercial loans is that a significant number have historically been non-recourse so buyers have come to expect that, with the market values reflecting the increased demand for commercial properties as a result of the less risky loan to the borrower. Back to work I go….

[investor]

Kingside. Just got off the phone with finance at marcus and millichap. They are still making non-recourse loans without personal guarentees, especially in apartments. There is no difference in california. I don’t know if the % is changing with the impending baloon payments from the peak from 2005 or not. In regards to another blogger who commented that commercial borrowers are wealthy peolpe who should morally pay the loan off, in a perfect world I agree. As I have said though, the history of commercial loans is that a significant number have historically been non-recourse so buyers have come to expect that, with the market values reflecting the increased demand for commercial properties as a result of the less risky loan to the borrower. Back to work I go….

[investor]

Kingside. Just got off the phone with finance at marcus and millichap. They are still making non-recourse loans without personal guarentees, especially in apartments. There is no difference in california. I don’t know if the % is changing with the impending baloon payments from the peak from 2005 or not. In regards to another blogger who commented that commercial borrowers are wealthy peolpe who should morally pay the loan off, in a perfect world I agree. As I have said though, the history of commercial loans is that a significant number have historically been non-recourse so buyers have come to expect that, with the market values reflecting the increased demand for commercial properties as a result of the less risky loan to the borrower. Back to work I go….

[investor]

Kingside. Just got off the phone with finance at marcus and millichap. They are still making non-recourse loans without personal guarentees, especially in apartments. There is no difference in california. I don’t know if the % is changing with the impending baloon payments from the peak from 2005 or not. In regards to another blogger who commented that commercial borrowers are wealthy peolpe who should morally pay the loan off, in a perfect world I agree. As I have said though, the history of commercial loans is that a significant number have historically been non-recourse so buyers have come to expect that, with the market values reflecting the increased demand for commercial properties as a result of the less risky loan to the borrower. Back to work I go….

[investor]

Kingside. You are probably correct with cali law. I have not done a commercial loan there so I will defer to your experience. In other parts of the country, personal gurantees are typically negotiated. I wonder if california, being a hotbed of commercial investing, has gone through enough bad cycles and implemented laws requiring some personal guarentees for commercial loans. If personal guarentees are standard, anyone know what is going to happen to the borrowers with all of the underwater cali commercial loans going bad now and into the next 3-5 years? There are alot of vacant strip malls out there.

[investor]

Kingside. You are probably correct with cali law. I have not done a commercial loan there so I will defer to your experience. In other parts of the country, personal gurantees are typically negotiated. I wonder if california, being a hotbed of commercial investing, has gone through enough bad cycles and implemented laws requiring some personal guarentees for commercial loans. If personal guarentees are standard, anyone know what is going to happen to the borrowers with all of the underwater cali commercial loans going bad now and into the next 3-5 years? There are alot of vacant strip malls out there.

[investor]

Kingside. You are probably correct with cali law. I have not done a commercial loan there so I will defer to your experience. In other parts of the country, personal gurantees are typically negotiated. I wonder if california, being a hotbed of commercial investing, has gone through enough bad cycles and implemented laws requiring some personal guarentees for commercial loans. If personal guarentees are standard, anyone know what is going to happen to the borrowers with all of the underwater cali commercial loans going bad now and into the next 3-5 years? There are alot of vacant strip malls out there.

[investor]

Kingside. You are probably correct with cali law. I have not done a commercial loan there so I will defer to your experience. In other parts of the country, personal gurantees are typically negotiated. I wonder if california, being a hotbed of commercial investing, has gone through enough bad cycles and implemented laws requiring some personal guarentees for commercial loans. If personal guarentees are standard, anyone know what is going to happen to the borrowers with all of the underwater cali commercial loans going bad now and into the next 3-5 years? There are alot of vacant strip malls out there.

[investor]

Kingside. You are probably correct with cali law. I have not done a commercial loan there so I will defer to your experience. In other parts of the country, personal gurantees are typically negotiated. I wonder if california, being a hotbed of commercial investing, has gone through enough bad cycles and implemented laws requiring some personal guarentees for commercial loans. If personal guarentees are standard, anyone know what is going to happen to the borrowers with all of the underwater cali commercial loans going bad now and into the next 3-5 years? There are alot of vacant strip malls out there.

[Author]

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