From the December issue: We’re programmed to believe that lying is bad; telling the truth is good. So two years ago, when the economy was in a tailspin and lenders started employing a strategy disparagingly dubbed “extend and pretend” for struggling commercial property loans, it’s no wonder they got a bad rap.

Critics painted the banks as liars who were doing little more than kicking the can down the road when they gave borrowers extra time to pay their due. By refusing to write down underwater mortgages, they said, banks were only delaying their inevitable losses and masking the true extent of the crisis.

But while the commercial real estate recovery still has a long way to go, it now appears that last year’s apocalyptic predictions were at least somewhat exaggerated. Whatever happened to the proverbial “other shoe” that was supposed to drop? [more]

Lenders will shift toward amending mortgages next year rather than extending maturities, leading to increased sales of distressed real estate, according to the annual “Emerging Trends in Real Estate” survey, conducted by PriceWaterhouseCoopers. More than 63 percent of the 900 surveyed said they expect maturing loans to be modified, while 7.1 percent said loans will continue without changes to defer losses, a practice known as “extend and pretend.” “‘Extend and pretend’ was the sound bite from a year ago,” Mitch Roschelle, co-chairman of the survey, told Bloomberg News. “Now it’s ‘extend and amend.’ There’s less pretending and more focusing on the reality.” According to a report from PWC, commercial real estate executives have lowered their return expectations. Stagnant wages and high unemployment rates have led landlords and their lenders to focus on current yield rather than expecting prices to rise, the report said. [Bloomberg]

[more]

As the fall of 2009 comes to a close, many of the commercial real estate lenders continue to limit their exposure to financing for real estate. The buzzword for 2009 is “extend and pretend,” whereby a bank extends the term of a loan to a later date. The legendary Samuel Zell, chairman of Equity Group Investments, the keynote speaker at the NYU Capital Markets conference Nov. 19, stated that “our government has become the bailout city. If a loan is kept current, banks will ‘pretend and extend.’” No one is surprised by the “pretend and extend concept,” especially if you had the opportunity to gain insight from the Federal Reserve’s October 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices and hear the comments made by Ben Bernanke, chairman of the Federal Reserve, in a speech at the Economic Club of New York Nov. 16. The Fed’s Opinion Survey addresses changes in the supply and demand of loans to businesses and households over the past three months. The results were based upon responses from 57 domestic banks and 23 U.S. branches and agencies of foreign banks. [more]

From the July issue: Commercial lenders are facing reality — but not all at once. In
addition to reluctance to admit they have bad loans on commercial
properties, lenders have been trying to avoid taking large losses in a
single quarter, industry experts said. In many cases, they are holding onto underwater real estate loans
not only because they don’t want to accept low-ball offers, but also
because they cannot afford the appearance of a large single-quarter
loss, said real estate insiders. Alan Miller, senior director of commercial real estate brokerage
Eastern Consolidated, offered a wry phrase to describe lenders
extending a loan past its maturity date to keep it from being
considered non-performing: “extend and pretend.” [more]