One can almost hear the pounding beat of Queen’s masterwork– “Da da da da da….Another bank bites the dust…” Pounding is the right description – as that’s what the banking world and the real estate world are now taking. First Republic is the latest domino to fall. What the heck is going on — and what can you do about it, as real estate people?…And who is next?
We, the real estate investor, need to understand what is going on – as this is actually a real estate drama, in more ways than one. What lay at the core of the collapse of both FRB and Signature Bank is made to sound similar to SVB, but….we RE investors know better – many banks have a very straightforward model for RE loans: you give us your deposits, we give you loans (often with attractive pricing). Devil’s bargain? Not really – but a bargain that, in the rearview mirror sure seems like it.
What do you do about it? Real estate investors need strong lending relationships that are not tied to depositors. Ie, diversify away from the banking system. You need lenders that can deliver you the loans you need, at great prices, with certainty of execution.
· If you’re an investor yourself, that means go get yourself non-bank lenders, aka private lenders. We at Diggifi can help you with that – just click here to get a quick consult with one of our experienced loan consultants.
· If you’re a realtor, and you want your investor clients to be able to keep pushing through their deals – we have similar advice for you. Help your client, help you – they need non-bank lenders who can get deals done. Just click here for one of our realtor-advisors and we’ll help guide you.
What’s going on? – the simple narrative in the financial press is that large, wealthy depositors are creating bank runs at the banks that cater to them. Simple, right? First SVB, then Signature, now First Republic.
Signature was different – it was a strong regional player that catered to real estate people. Of course, that bank had tech exposure too (thanks to a mis-begotten crypto strategy that was an attempt to juice returns in the-then low interest rate environment).
…and now, FRB – once again, strong player that catered to real estate people. Large deposits that, once spooked, can disappear in a heartbeat, moving to the next [suitor] offering great real estate loans, at the price of bringing your deposits along.
All of this is glossed over by the mainstream financial press. The comparison to SVB makes sense – in all cases, large scale business deposits fled the banks en masse and this bank run led to collapse. However, it’s also misleading, as SVB was a different animal – as it was so tied to the tech/VC market. The source of its large-scale deposits – and hence instability – was the Tech world.
As to how many more will fall victim – and who’s next? – nobody can tell. What can for sure be predicted is that this run of bank runs has not yet run its course.