The severe lack of accessible capital has brought the Bay Area real estate sector to a near dead stop, upending deals, stalling development and scuttling sales, builders and brokers say, reporter James Temple writes in The San Francisco Chronicle.
It’s not a pretty picture. What capital is available costs more and cuts profit margins. Given the international credit crunch, banks require a higher level of equity in any deal, whether it’s a sale, new development or debt servicing. Private equity investors always seek higher rates of return than the debt side, but are pushing up their terms higher still.
Returns diminish often beyond the level where a deal is still profitable or at least worth the risk. The effective result is like a stick jammed in a bicycle wheel: Things comes to a screeching halt.