Statistics on lender recovery by sector
Here is an interesting story citing a study by Real Capital Analytics showing that lenders might expect to recover about 60% of their investments on defaulted commercial loans that have been liquidated, with varying numbers by sector. Is that an incentive to renegotiate deals, extend and maybe pretend, or to look to sell the notes, take the 60% and run?
The 60% is before costs and fees, by the way. I think it might be a sign that everyone is going to have to take a hit in this market. But we knew that already. My one quibble with the study has nothing to do with the methodology of RCA but rather of the study sample. I think, for instance, it is hard to say that a lender on a land deal is only going to get 32% of its money back when the sample size is so small. I also do not know the statistical significance of 145 properties in the grand scheme of the market. There's also the issue of asset location.
What I really found interesting is that the "underwriting" of the newer loans being liquidated is holding up pretty well compared to older loans under supposedly tighter standards. Now, as the story says, there are many factors that could come into play here but I think it does remind us that property, as we learned in law school, is inherently unique. Nonetheless, some data is always better than none, because there is nothing worse then negotiating in a vacuum.
The 60% is before costs and fees, by the way. I think it might be a sign that everyone is going to have to take a hit in this market. But we knew that already. My one quibble with the study has nothing to do with the methodology of RCA but rather of the study sample. I think, for instance, it is hard to say that a lender on a land deal is only going to get 32% of its money back when the sample size is so small. I also do not know the statistical significance of 145 properties in the grand scheme of the market. There's also the issue of asset location.
What I really found interesting is that the "underwriting" of the newer loans being liquidated is holding up pretty well compared to older loans under supposedly tighter standards. Now, as the story says, there are many factors that could come into play here but I think it does remind us that property, as we learned in law school, is inherently unique. Nonetheless, some data is always better than none, because there is nothing worse then negotiating in a vacuum.
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