In the April 12, 2006 Wall Street Journal is an article, “Big Banks Find Property Loans Riskier” by David Enrich, which describes the main reason Manhattan House residents are in their current predicament.
The piece is about “the growing jitters among bankers and regulators that an influx of capital into commercial real estate lending is causing some in the business to take aggressive risks and could leave banks over exposed in a cyclical industry.” Commercial real estate lending covers apartment complexes like Manhattan House.
Specifically, major lenders are choosing not to compete with investment banks, which they fear are agreeing to lending terms that would be unheard-of in a less feverish environment. The intense competition is in part yet another byproduct of the huge supply of capital in the hands of yield-hungry investors.
Credit Suisse – a global investment bank - provided Kalikow and O’Connor the loan to purchase Manhattan House through the use of CMBS (Commercial Mortgage Backed
Security) notes.
“I’m from Texas, and I’ve seen this movie before,” said Todd Maclin, J.P. Morgan Chase & Co.’s commercial-banking chief.
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2 comments:
I think I saw the same movie in New York City in the late 1980's and early 1990's.
Oversupply of capital can be more dangerous than undersupply. This is the stuff that makes bubbles - and it's ugly when it deflates.
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