Insight from the 2008 Trigild Lender Conference
A record-breaking crowd gathered in sunny San Diego for the much anticipated Trigild Lender Conference, Oct. 22-24.
This year's event was aptly named "Handling Curves in the Lender Ballpark," -- and held at downtown's towering Omni Hotel - adjacent to the city's landmark Petco Park.
According to Trigild's Bill Hoffman, the event grows by leaps and bounds each year, attracting experts in the finance, commercial real estate and legal sectors. This year, more than 300 professionals from around the country gathered to address how the Fed's rescue plan will impact financing and commercial loan defaults, and share survival tactics for tough times ahead.
A roster of prominent speakers and panelists convened to address the eighth annual symposium -- and had this prognosis for today's erratic economy: "the worst is yet to come." In fact, most agreed that the situation will not start to improve until the first quarter of 2010.
Experts at the event named the credit crunch as the primary culprit in the commercial and residential real estate meltdown. "Until the credit markets ease, the economy will be extraordinarily strained," said keynote speaker Sam Chandan, Ph.D., chief economist and senior vice president of research for New York City-based Reis Inc.
Not surprisingly, the fundamental contributor to the dire situation is the residential housing slump. "We simply built too many housing units, and this problem is not going away, " said Portland, Ore.-based William Conerly, Ph.D., also a keynote speaker and principal of Conerly Consulting LLC, chief economist of abcInvesting.com, and author of Businomics: From the Headlines to Your Bottomline-How to Profit in Any Economic Cycle.
Add to the mix, a loss of consumer confidence and a tight lending market, and "you have a full blown recession," said Conerly. "Banks do not make bad loans in bad times, only in good times," he pointed out. And these days, banks aren't even making good loans. "Banks are nervous, as half of the assets in the whole banking system are real estate related."
The final outcome remains to be seen. "It's still a mystery," said Conerly. "We don't know how much balance sheets have been compromised by all this."
Tough Times on Horizon for Commercial Real Estate -
During the "Looking Ahead" panel, moderated by Kevin Donahue, senior vice president with Midland Loan Services in Overland Park, Kansas, panelists concluded that while commercial real estate has not been overbuilt like residential, there are looming problems in this arena as well.
Commercial defaults are steadily increasing, which is not a big surprise to the experts. "This is what we expected," said David Innarone, managing director of CW Capital.
"The system is fragile," added panelist Clark Rogers,senior vice president of KeyBank Real Estate Capital in Kansas City, Mo., especially when you add on excessive risk taking and the lax oversight which created the situation.
And things will get bad before they get worse. "This is just the beginning," said Thomas Deane, head of structured transactions and special services for Wachovia Securities.
"Commercial real estate debt is at an historic high," said Chandan. "Some commercial loans were based on inflated earnings which turned out to be too optimistic," said panelist Hoffman, president of San Diego-based Trigild.
There is just no exit strategy for these bad loans, and no way to address the rising tide of delinquencies and defaults. "Because of the difficulty in obtaining financing, more and more projects are coming out of the pipeline," said Chandan, during his keynote speech on Friday.
"Banks will continue to face challenges in extending credit," said Chandan, "fueled by obstacles from recent years' growth in commercial real estate exposure, reduced profitability in commercial portfolios on higher delinquency management costs and spillovers from residential mortgages."
Due to tighter standards, commercial transactions will be muted and pricing will fall further, as "overleveraged borrowers sell assets under duress," Chandan said. Stabilization will occur in the largest markets first, and then in secondary and tertiary markets. "In the meantime, we will see short-term loans coming to maturity, which will be difficult, and in some cases impossible, to refinance," Hoffman added.
Despite the grim economic news, conference attendees remained upbeat, enjoying the informational seminars, professional camaraderie and temperate San Diego climate.
Attendees agreed that the event provided critical insight in an era of volatility and uncertainty. "One of the most valuable conferences I have ever attended," said attorney Ed Foster, of Akerman Senterfitt's Orlando office. Added Curtis Spaugh of Capmark Finance, it's the "best conference ever for the special servicing and workout industry."
"Wow," said Paul Marzynski of Dougherty Funding in Minneapolis. The conference was "thought provoking, with lots of experts and opinions. It will help me be prepared. I'm looking forward to next year's event."
Trigild News
Trigild has been appointed receiver for seven residential projects -- in Seattle, Tucson, Fresno, Phoenix, Sacramento and Chicago -- representing over $100 million in defaulted mortgages. Additionally, Trigild was named receiver for a 143 room hotel in Pensacola, FL and last week reopened a La Quinta Inn located in Oklahoma. The property had previously been abandoned by the borrower and lost its franchise. As receiver, Trigild was able to negotiate a new franchise agreement, bring the inn up to the franchise's standards, and hire and train the hotel's staff. Most of the properties will be sold while in receivership.
About Trigild
Trigild is the only non-performing commercial loan specialist that combines receivership / trustee, management and disposition services under one roof. That means no coordinating multiple companies, and no duplication of fees. We have the expertise to quickly take control of the assets, maximize operating results, and speed recovery by selling the assets quickly through our national network of industry contacts. This is our core business, not a sideline. The results? Absolute certainty that you will achieve maximum loan recovery-faster, easier and more cost-effectively.