Comments on: So, Where’s the Boston Condo ‘Shadow Inventory’?

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By: pain in the

pain in the — Wed, 27 Jan 2010 00:20:14 +0000

I agree with you Mike but they still have have the property on the books as an asset for appraised value. Once they sell it, they have to put deal with the actual value. If a bank fears that the sale price is less than they the appraised value, it is probably better to list it as an asset.

By: Bobby

Bobby — Tue, 26 Jan 2010 17:11:16 +0000

Hmmm… Yes that all seems to make sense. Some of the properties I talking about are in great locations. Off St.Botolph, Union Park (the good end of it) and so on.

By: Mike

Mike — Tue, 26 Jan 2010 14:12:29 +0000

Pain in the, lenders are actually supposed to take write-downs as the value of the loans decline, recognizing losses as they occur. I agree, there’s a lag between when the decline happens and when the bank is forced to record it, and selling a property may accelerate the recognition of that loss, but they do have to write down properties. OREO (other real estate owned) is a category of assets that is closely watched by auditors and bank regulators.

Usually banks take forever to sell properties not because of the accounting, but rather because they don’t have staff whose job it is to focus on selling the properties – dedicated workout groups take a while to hire and train. Until they are put in place, the sales are handled by someone as an adjunct to their regular job, so they get little attention. Plus, banks may not have clear procedures for how to sell a property, so it takes forever for the bank employees to figure out what they’re supposed to do in a sale situation.

By: pain in the

pain in the — Tue, 26 Jan 2010 01:09:33 +0000

Bobby,

When banks sell a property for less than the loan amount, they have to take a loss on their books. As long as it sits fallow they can claim the value is equal to the loan amount. For example, the bank loans 1mil on a place and then has to foreclose. If prices had dropped 10% since the sale and they only get 900K, they have to take 100K loss. This is a compounding loss as they now have less money to lend. By just letting it sit there and rot, they can claim 1mil in assets. I, of course, don’t know what the situation of the places you refer to is, but it could be an explanation.