This morning’s official pronouncement: First Republic Bank has been seized, and in a deal that has been cooking for the past several weeks, they’ve agreed to sell to JPMorgan.  If you’re counting, this is the 3rd major US financial institution to fail in the last two months. Not a surprise.  As I said, this has been quietly working since Silicon Valley Bank and Signature Bank both fell prey to poor management practices a few weeks ago.

Our immediate concern is how this affects our ability to secure CRE financing.

These incidents plus the meteoric rise in interest rates have certainly gotten lender’s attention.  And recently the economy has started to show the effects of the last 12-13 months of those rate increases.  And yes, not a surprise.

And yet, the markets’ expectation from tomorrow and Wednesday’s FOMC meeting is for yet another ¼ increase in the fed funds rate.  If it materializes as expected, this will take the fed funds rate to 5.25% (ask), and Prime rate to 8.25%.  This is widely expected to be the terminal rate for this cycle where the fed will hit the “pause” button and allow the economy to digest the affects of all it’s work for the past year.

Speaking of the economy showing affects of rocket-to-the-moon rate hikes, what are those affects exactly? In a word, recession!  Mild or severe, hard landing or soft landing,  sooner (Q3) or later (Q4-Q1 ’24)?  We don’t know – all are variations on the theme. We’re not economists here, so we can only present what the “smart people” say.  And the smart people almost universally say the slow down is coming.  Lenders, of course, are smart people! (Except those that worked for First Republic Bank, Silicon Valley Bank, and Signature Bank.)

So, the surviving smart people have pulled up their pants, tightened their belts, sharpened their pencils, and sustained the rhetoric that they’re still lending.  And indeed they are.  But the mine field in underwriting has become denser, with more extensive and burdensome terms and conditions documented to the nth degree.

All this is having the affect you’d expect … well, maybe not.  It turns out that we’re busier than during what were “normal” times. Seems borrowers are recognizing the difficulty in obtaining a loan in this charged environment, and are seeking assistance from a consulting party who doesn’t work for the lender.  One who might actually have their interests at heart. That would be us!