The current real estate slump in the Baltimore-Washington area, which has crippled the finances of major banks, will probably last two to three years as banks cut back their lending and supply and demand return to normal levels, according to a panel of bankers and real estate developers.
Real estate problems and how banks are reacting to them was the topic of a panel discussion featuring two bankers and two real estate developers at the University of Baltimore last night. The event was sponsored by the Accounting Advisory Board of the University's Merrick School of Business. "We won't go down that far that we can't recover in a fairly healthy time," said Richard Alter, president of the Manekin Corp., a local real estate development firm.
He expects "balance and normalcy" to return to the local real estate market in the next three years as fewer projects are built as a result of banks and insurance companies making fewer real estate loans.
But before that balance is achieved, there will be problems with getting real estate loans and "if you have cash, cash is king," he said.
Alter also does not expect the Baltimore area to be hurt as badly as other parts of the country. "I don't think Baltimore is ever as good in good times or as bad in bad times," he said.
He blamed the current poor market on overbuilding spurred by the availability of too much money. "Too much cheap money screwed up the marketplace," Alter told the audience of about 200 people.
Much of that money was available to real estate development because banks were losing traditional commercial customers to other financial institutions, according to Carl Stearn, chairman and chief executive officer of Provident Bankshares Corp., the parent company of Provident Bank.
At the beginning of the 1980s, commercial real estate loans accounted for 13 percent of the loan portfolios of commercial banks, Stearn said. By the end it had grown to 19 percent. "Real estate became one of the few games in town," he said.
In recent months, the number of non-performing real estate loans has increased dramatically, Stearn said. Nationwide, the percent of non-performing loans among real estate portfolios has jumped from 3.16 percent at the end of March to 3.45 percent at the end of June. "That is tremendous jump in three months," Stearn said.
Non-performing loans account for only 2.06 percent of the $17.3 billion of real estate loans held by Maryland banks at the end of June, he said. But that represented a 122 percent increase in the last three months, Stearn said.
One of the banks hit hardest by real estate problems has been MNC Financial Inc., the parent company of Maryland National Bank. Of MNC's $16.4 billion loan portfolio, 4.7 percent was listed as non-performing assets as of June 30. This amounts to $757 million in non-performing loans, up sharply from $359 million as of March 31.
As MNC's problems have grown, its stock price has plummeted from about $20 a share in January to only $4.87 1/2 yesterday.
These problems have also affected the stock price of other banks, which are trying to reduce their real estate loans.
Tom Scott, executive vice president of Signet Bank of Maryland, said his bank's goal is to reduce its percentage of commercial real estate from 17 to 12 percent.
All of the tightening of credit means leaner times for developers, according to John A. Luetkemeyer, president of Continental Realty Corp., a local company that owns and operates apartments, shopping centers, offices and warehouse space.
"You're back to old fashioned lending," Luetkemeyer said. "In this environment, we don't think you can be too conservative or too cautious."