Bankers Show More Optimism about Commercial Real Estate

Article excerpt

NEW YORK (AP) _ Commercial real estate is no longer a pariah of the investment community, and that shift in attitude stands to bail out bank earnings in the years ahead, executives and bankers said Wednesday.

Leading New York bankers are now optimistic about their prospects of unloading billions of dollars in real estate loans, foreclosed office parks and shopping malls.

"We're seeing pricing stabilizing, but more importantly, we're seeing increased investor interest," said Joseph DeLuca, head of Chemical Banking Corp.'s real estate division.

Major banks' first quarter earnings reports showed generally positive trends in real estate. Citicorp was able to sell $125 million in troubled real estate during the January-March period. Chemical Bank saw its troubled real estate account fall $127 million to $2.4 billion.

This by no means signals a return to the profligate real estate investment in the 1980s, analysts say. But after a severe drop in property values since the late 1980s, bankers are rejoicing that demand is up and price declines in turn have stopped.

"We are leveling off and things are starting to look up in a few years from now," said Merrie Frankel, a director in corporate finance group at Cushman Wakefield Inc., a real estate concern.

Money to finance new or existing real estate deals dried up in 1990 as property prices fell due to high vacancy rates and overbuilding during the 1980s. The recession made matters worse, sending once-mighty real estate developers such as Olympia York Developments Ltd. and Donald Trump to bankruptcy court.

Banks were left holding billions of dollars in failed loans and foreclosed properties, while there have been relatively few buyers.

A reduction of banks' delinquent loans and foreclosed buildings benefits their balance sheets in several ways. They no longer have to pay the expensive upkeep and taxes for property they've acquired to satisfy bad debts. It also reduces the level of risky assets on balance sheet, meaning banks have to set aside less money in a capital reserve against losses. …