If you’ve recently tried to refinance your home, you’re probably quite aware of the changes in the lending market from a few years back. Even though interest rates have been held artificially low by the Federal Reserve, obtaining financing can be worse than getting a tooth extracted – even if you have pristine credit. That same market exists for commercial loans, and that’s why I sat down with industry guru Steve Gold to discover what’s going on.
Steve has been in the commercial financing business for forty years, during which time he has arranged both equity and debt for commercial properties of all kinds. In 1976, he became president of Center Financial, which he ran for fifteen years and during which it became one of America’s largest lenders for commercial properties. He chaired the advisory board for the Real Estate Curriculum at UCLA; and, in 1980, formed the UCLA Hotel Conference (although now housed under another entity) which attracts 2,500 attendees every year.
In 2000, Gold formed Hotel Financial Strategies, specializing in loans and equity funding for hotels. It quickly became one of the premier boutique firms in its field, annually supplying over $1 billion of financing for hotel development and acquisition. Gold’s extensive experience and influence in the lending industry made him the perfect person to explain why the economy remains so stagnant almost three years after the recession was declared over.
Gold reminded me that the real estate market started to plummet in the fourth quarter of 2007, and by 2009 he was down to two offices (from seven) and down to $50 million (from $1 billion) in annual finance activity. During the first nine months of the downturn, he had potential customers walk away from a billion dollars in commitments – a perfect, if concise, example of why the economy went into a free fall. The question is why it hasn’t bounced back.
The principal answer is Dodd-Frank. The recession left very few players on the field, and, while there used to be multiple sources of financing, the nation’s ten largest banks now control between 75% and 80% of the market. Dodd-Frank may not officially be in effect, but Gold explained how each of these banks is acting as if the law is in full force. In addition, the banks are spending huge sums of money dealing with the regulators who are crawling all over them and restricting their activities.