Costs of CRE Underwriting Mistakes

Goals

Identify how much money in $USD was lost as a result of commercial real estate (CRE) analyst/underwriter mistakes when working on deals related specifically to the U.S. market.

Early Findings

Helpful Definitions

  • Capital Buffer — "a set of measures taken to ensure that banks have an additional layer of usable capital that can be drawn down when losses are incurred"
  • Capital Loss — "the loss incurred when a capital asset, such as an investment or real estate, decreases in value"
  • Delinquency Rate — "the percentage of loans within a financial institution's loan portfolio whose payments are delinquent"

Commercial Real Estate (CRE) Losses

  • According to the Federal Research Economic Data (FRED) database, the delinquency rate on commercial real estate loans in the U.S. was 0.67% in Q4 of 2019.
  • At the end of December 2019, FRED also published that there was approximately $2,319,564,400,000 out in commercial real estate loans in the U.S.
    • Based on the above values, this means that about $15,541,081,480 is lost due to CRE loan delinquency. ([$2,319,564,400,000] * [0.67%] = $15,541,081,480 lost from delinquency)
  • Mistakes such as not doing due diligence, implementing an exit strategy, and not underwriting existing property tenants are all major issues that can lead to lost money.

Proposed next steps:

You need to be the project owner to select a next step.