The Chairman of the Federal Deposit Insurance Corporation issued a statement warning that the biggest area of remaining risk for banks is commercial real estate loans. Her statement comes as a result of continued rising losses on commercial real estate loan portfolios. To date, over the past two years, banks have written off $6.2 billion in loans backed by commercial property. There is an additional $500 billion (estimated) of commercial real estate loans set to come due in the next three or so years.
What this means for healthcare capital lending is that markets will remain tight, especially within the traditional commercial banking arena. Healthcare lending is heavily backed by real estate (plant, property and equipment) which is unfortunately, often (and rightly so) viewed as specialized, single use collateral. In the event of default, there is truly no ready market to turn to for willing and able buyers. In addition, property values due to the specialized use, are difficult to ascertain. While comparables are available to a certain extent, there are huge regional differences in property values making comparables from one region to the next literally like comparing apples to oranges.
As long as lenders see potential softness and losses within even their “vanilla” commercial portfolios, they will remain extremely gun shy about lending for healthcare real estate projects.