Here’s an interesting commentary on the state of Capitalism in America, specifically as it pertains to commercial real estate. I have said often on the web site and in other writings that commercial real estate is a “capital intensive business.”
That capital takes on two forms: Equity and Debt. Right now equity can be found in abundance. Unfortunately for larger projects, equity is not enough. To complete the capital picture, you need debt, and that is provided mostly by banks and other financial institutions. The problem though, is that natural capitalistic forces are being circumvented by regulation.
Today, a federally chartered lender is caught in a viscous circle: Commercial real estate needs debt financing in order to be a viable business. Lenders are unwilling to lend on commercial real estate because prices are coming down and they don’t want regulators “dinging” them for making “bad” loans. The lack of capital drives commercial real estate prices even lower, forcing bankers to write down their assets more and be even less willing to make loans … regardless of how good the loan prospect is!
And ’round we go …
Get the regulators out of the way and maybe lenders would be more willing to evaluate a loan canditate on its business merits, circumventing this downward spiral.
For more detail, please go here:
“Capitalism Doesn’t Work Without Capital”
