Bank balance sheet loans next big issue for US real estate

With more than 800 banks on the FDIC watchlist, dealing with the troubled assets on thousands of community and regional banks will be priority for industry.

Tackling the troubled real estate loans on thousands of banks’ balance sheets will be a top priority for the US property industry.

On the final day of the Association of Foreign Investors in Real Estate (AFIRE) conference, delegates were told that trying to deal with the assets of banks “not in receivership” was one of the “top five” priorities facing the country.

More than  820 banks are currently on the watchlist of the US banking regulator, the Federal Deposit Insurance Corporation, which supervises more than 8,000 bank and financial institutions.

The AFIRE conference in Chicago heard that around 4,200 of those banks – managing assets between $1 million and $1 billion – had on average an exposure to real estate of 345 percent of their banking equity.

Speakers at the conference said “trying to figure out how to deal with the assets of banks not in receivership is one of the top five issues out there”.

In taking over banks, the FDIC is attempting to repackage the commercial and residential real estate loans on banks balance sheets and sell stakes  in those pools to private investors, including to the likes of Starwood Capital Group, Colony Capital and Rialto Capital Management.

Those structured sales would continue, AFIRE speakers said. “There’s a lot to be done,” they added.

The conference, taking place in Chicago, also heard that the securitisation industry was “standing at a cross roads” following the recent reforms to the US financial industry.

One veteran mortgage investor told delegates the Dodd-Frank Act that had just been passed by Congress would dramatically increase the liability of ratings agencies in rating CMBS deals in the future – raising questions of how much liquidity will return to the market.

“We are on the cusp of trying to figure out how we rebuild a major piece of the capital markets in a way that functions.”