WHAT DO YOU THINK ABOUT CONGRESS’ $700-BILLION BAILOUT PLAN?
Executive Watch
Sharing the Pain Another shoe dropped on Wall Street, yesterday. Citibank...
Last week’s GlobeSt.com Quick Poll asked readers about their reactions to Congress approving the $700-billion bailout package. Nearly half the respondents indicated that the bailout “stuck it to the American taxpayer,” while 23% said the action derailed any private-sector solution and 29% said the bailout came just in time because there was no other way out. Howard Taft, managing director with the Miami office of Cohen Financial, says an argument could be made for all three reactions to the plan. He shares his thoughts on the poll and the bailout’s effect on commercial real estate:
“I think in this instance, all three effects are [present] in the current market today. I think more banks would have failed [had it not been approved] and we would have had a quicker meltdown, like what happened last week in the stock market.
“In terms of derailing any private-sector solution, there wasn’t any private-sector financing that could have matched the Treasury funds. I would also say the bailout absolutely stuck it to the taxpayer. That’s $700 billion we have to borrow from China and other foreign countries.
“In the short term, it’s going to be very difficult [for commercial real estate] because cost to capital is going up and it will be difficult to refinance debt that is coming due or get new debt. It is affecting commercial real estate from the largest REITs to the smallest entrepreneur.
“Commercial real estate prices are going down and vacancies are going up, causing another dichotomy in the market. The credit that is available is at a lower loan-to-value with tighter underwriting that is resulting in lower loan proceeds. There are also higher cap rates, which reduces the loan amount. It’s like a triple whammy.
“We’re seeing refinancing where the loan proceeds today are less than the existing debt, which is causing additional problems and will be a future issue in the next couple of years. On the bright side, I think that there’s plenty of debt out there for well-located, income-producing properties with good sponsors, but at lower loan-to-values.”
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