| Lehman Brothers will not live to see its 159th birthday. | | | | committed more than $300B to shore up faltering |
| Merrill Lynch will continue to exist in brand name only. | | | | institutions the Fed is down to it's last half trillion. And it |
| The recent turmoil on Wall Street is just more | | | | may very well get worse before it gets better. |
| evidence that our banking system is horribly | | | | With traditional lenders and conduits out of the picture, |
| dysfunctional. | | | | commercial property owners and developers are |
| Conventional lenders such as banks, Wall Street | | | | turning to private lenders for the financing they so |
| brokers and Hartford insurance companies traditionally | | | | desperately need. Many private, hard money lenders |
| originated commercial mortgage loans and then sold | | | | are "portfolio lenders", meaning they lend their own |
| them into the secondary market where they were | | | | money for their own account. These unique mortgage |
| bundled, turned into MBS (mortgage backed securities) | | | | lenders are not dependent on the secondary market |
| and sold to investors, large and small. That ship has | | | | for their funding; they remain undaunted by the ongoing |
| sailed, now it has sunk; there is (virtually) no secondary | | | | problems in the bond markets. Private mortgage |
| market for mortgage bonds anymore. Volume in | | | | lenders make money by charging high rates and many |
| CMBS (commercial mortgage backed securities) is off | | | | points for their capital and they protect themselves by |
| by more than 90% year-over-year and the pipeline of | | | | writing loans at low LTVs (loan-to-value ratios). |
| new deals is dry. | | | | Private lenders include, hedge funds, private equity |
| Banks are severely undercapitalized today due to the | | | | groups, wealthy individuals and privately held financial |
| sudden and sustained devaluation of the real estate | | | | firms with money to lend. They are able to be very |
| and real estate derivatives they hold. They can not | | | | nimble and responsive and can close good deals in just |
| afford to let a dime out the door. They can't borrow | | | | a few weeks. They can be highly flexible in their |
| against their mortgage assets anymore nor can they | | | | lending standards, generally underwriting loans based |
| sell them; nobody wants them! With no market ready | | | | on the amount of equity in the target property rather |
| or willing to buy new commercial mortgages, banks will | | | | than the credit or balance sheet of the borrower. The |
| not write any new commercial mortgages. In simple | | | | sad fact is that banks and brokers are unable to close |
| terms; banks are not lending and won't be lending again | | | | deals. Cash rich private lenders have been the financial |
| anytime soon. | | | | savior to many, many good projects over the last 18 |
| We are in the midst of a severe liquidity crisis that is | | | | months. |
| evolving quickly into a capital crisis. Capital disappears | | | | The banking system has malfunctioned and will take |
| as-fast-as it's raised as real estate backed assets | | | | months to get back on track. In the meantime |
| continue to plunge in valuation. If this keeps up there | | | | commercial real estate investors will have to depend |
| won't be enough money to go around. Even the | | | | on the private lending sector to provide them with |
| Federal Reserve Bank is feeling the pinch, having | | | | much needed capital. |