Wednesday, June 25, 2008

Shouldn't loan prices be coming down already?

Like many other investors Llenrock Group, through our Llenrock Realty Partners arm, has lately been in the market to buy discounted or distressed loans secured by commercial real estate. However, we've been finding that the situation in the secondary debt market is much the same as in the property markets: buyers and sellers just can't seem to reach an agreeable price and stalemate has set in. This standoff has been noticeable for a while now and predictions that loan transactions have to start picking up were being made almost a month ago but have not started coming true.

It seems to me that lenders looking to unload loans will have to start budging on their prices very soon. If property sales are at a stalemate that means there's a good chance that values will eventually start slipping to effectuate transactions. If values start slipping that means the value of the loans will decrease as well, in line with their collateral. Holders of loans would be wise to sell their loans now in an effort to conserve capital for another day and return some origination money to the streets in the form of new loans. The longer they wait the bigger discount buyers will demand and at some point, depending on how long the current downturn lasts, lenders may be forced to take what they can get.

Llenrock Group

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