We had an interesting real estate panel this morning, with the head of commercial real estate lending from Webster, Bill Wrang, our appraisal partner, Marc Gottesdiener, and Mike Morand from the Yale Office for New Haven and State Affairs. There was a lively discussion of how we got to where we are in the national financial mess, what the current state of the Connecticut market is, and what we can expect in the future. We also heard from Mike about Yale's real estate plans.
The bottom line: New Haven and CT are better off than many parts of the country, but we are in the midst of a frozen commercial market. In 2007, 500 billion in real estate changed hands. In 2008, that number was 110 billion. So far this year, it's 9 billion. No wonder we are finding conditions so tough! Over the next couple of years, many loans will come up for refinancing. Values have generally held, and appraisers are finding that bankers are shocked at the low rate of decline over the past year. Retail and apartments are taking the biggest hits in valuation.
Cash is king, and cash flow will determine future ability to borrow. It's better to make a new deal with an existing tenant, including free rent and/or lower rates, than to have a vacancy. Lenders are looking for a lower loan-to-value ratio, although rates are still low. Banks are loath to foreclosure, and relationship lending is the way to go. Balances in the bank are important. There is most likely still another shoe to drop on the commercial side, but, so far, we are not seeing much delinquency in this region.