As published in Scotsman Guide's Commercial Edition, July 2010.
Forty minutes before closing for the week, Frontier Bank's CEO read a somewhat-startling headline on the Snohomish County (Wash.) Business Journal's Web site: "FDIC Seizes Frontier Bank."
Overlooking the fact that the publication copped to jumping the gun on running the article — the Federal Deposit Insurance Corp. (FDIC) shuts down operations at the end of the day, often unannounced — the seizure wasn't necessarily a surprise. A harbinger for the failure of Frontier and others: commercial real estate loans.
Poor performance from these loans, as well as construction and development loans, is a primary factor in recent bank failures of late, according to research firm Trepp LLC.
All five banks the FDIC seized this past June 2, for example, experienced "significant losses" related to commercial and construction loans, according to an FDIC spokesman. Trepp reported that these loans comprised 80 percent of nonperforming loans in their portfolios. As The Daily Herald of Everett, Wash., noted a month before Frontier closed, these loans also weighed heavy on that bank and others in the area.
As of press time, about 10 percent of all U.S. banks were on the FDIC's "problem" list, which it does not make public. And if their holdings are anything like those of the banks the FDIC has seized already this year, Friday evenings could be somewhat startling for quite a few other CEOs in coming weeks.
Although commercial real estate's peril isn't lost on the majority of commercial mortgage brokers, coping strategies surely are in high demand. Cost Segregation Partners' Grant Keppel offers one solution for brokers' cash-barren customers in this month's Lead Article. Provident Bank's Gina Koenen also examines lenders' latest priorities in her article in this issue.