Journal of Property Management - September/October 2010

The report also noted the largest commercial real estate loan losses are projected for 2011 and beyond, with losses at banks reaching as high as $200-$300 billion. The financial strain on banks is a major difference between today’s downturn, and the savings and loan crisis in the 1980s and 1990s.

Baiamonte attributed the current strain on banks to the broadness of the downturn and how it has affected virtually every asset class. He said banks’ capital have been greatly reduced because all investment types have been hit hard, while real estate was the main asset class hit during the savings and loans crisis. Banks simply don’t have the capital to offer financing.

“Today, financing is virtually unavailable, although it is becoming slightly more available [than it was in early 2010 and all of 2009],” Baiamonte said. “[During the 1980s and 1990s] sellers might not have liked the price they were selling at, but buyers could get financing.”

• wHERE wE stooD •

The savings and loans crisis was the failure of more than 700 specialized financial institutions that accept savings deposits and make smaller personal loans, such as mortgages and car loans.

In the early 1980s the government allowed these struggling banks to raise interest rates on deposits, make commercial and consumer loans, and removed restrictions on loan-to-value ratios. The banks also began taking on risky real estate loans. Eventually they began to fail.

The bailout of these institutions cost taxpayers more than $124 billion, through increased taxes and charges to their savings and loans accounts, according to information from the FDIC.

Additionally, the federal government formed the Resolution Trust Corporation (RTC) to take over and dispose of real estate-related assets declared insolvent by the Office of Thrift Supervision—another major difference between today’s real estate crisis and the one resulting from the savings and loan crisis, Baiamonte said.

No entity has been created to remedy today’s real estate

A down market is when
the skills and expertise
of our IREM Members
can really shine.

— JACK GALLAGHER, CPM®

meltdown, whereas the RTC cleared out problem real estate fairly quickly, even if it resulted in real estate values falling around 35 percent, he said.

“Banks are working through all their commercial mortgage backed securities loans at a much slower pace,” Baiamonte said. “It will certainly drag out recovery, and it won’t recover as fast as it did last time.”

• REalIty cHEcK •

With a slow recovery in mind, real estate managers continue to cope with the changing expectations of lenders and owners, some of which have been positive changes, while others have created more work or required a shift in management style.

As far as lending goes, Jack Gallagher, CPM, and senior vice president at Polinger Shannon & Luchs, AMO®, in Chevy Chase, Md., said management firms are required to do more with the same number of or fewer people. Securing a loan is difficult enough at present, he said, although things seem to be improving. But once a loan is secured, companies are having to do more paperwork and reporting to lenders.

On the positive end, Gallagher said owners are realizing the importance of property managers and how their skills and experience can keep a property afloat—if not profitable—in a down market.

“When things were good, property management was
an afterthought. People thought, ‘anyone can do that.’ But
when things get tough, all the sudden property manage-
ment becomes real important.”
Barbara Holland, CPM, and president of HL Realty and
Management Company, in Las Vegas, said the downturn
has been a reality check for many owners.