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The Fed Bails Out Commercial Real Estate Investors in $1 Trillion Program

By Jim Gillespie | May 14, 2009

Bloomberg reports that the Federal Reserve has authorized longer-term loans for investors buying commercial mortgage-backed securities as part of a $1 Trillion emergency credit program. This action was taken to try and avert all the expected defaults on commercial property loans in the months ahead.

If you’re an investor in commercial properties this could be good news for you. But if you’re a commercial broker, it could be bad news.

The recession has been difficult for commercial brokers, as many owners have refused to sell their properties at today’s lower prices, and financing for buying commercial properties has been hard to find. One of the great saving graces that I’ve seen coming for commercial brokers over the next two years is the fact that so many commercial loans are coming due. And because of the drop in market values in many areas and the difficulty in refinancing these properties today, many owners would have been forced to sell their properties or risk losing them to foreclosure. And this would have created a great abundance of new transactions for commercial brokers to earn and get paid more commissions on.

But with this new funding being made available through the government, many owners will now be refinancing their properties and not selling them, as this government intervention has interfered with the free market and how people would normally be doing business. And while these commercial real estate investors are being taken care of, I don’t expect our government to be sending you any six-figure checks because you’re having a tougher time making money as a commercial broker these days.

The good news is that more financing will hopefully now become available through this action for people to buy commercial properties. But at the same time if owners can now refinance with loans they could never have normally gotten in today’s market, more owners will simply say, “Why should I sell now that the government has provided me with this great new financing on my property? This financing now allows me to hold onto a building I would have otherwise had to sell when the loan came due.”

And this, from the perspective of a commercial real estate broker, stinks. You get paid when transactions close, and any intervention that stops people from wanting, needing, and having to close transactions limits your income.

Click here to read the Bloomberg article.

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