Last week I reported that Massachusetts’ banks are realizing growing default balances in their loan portfolios. This week the BBJ is reporting the same.

On Friday I was contacted by a guy in the industry whom I met at a number of the larger auctions we’ve held over the last year or so. He is in the process of buying a construction/development note that’s in default with a local bank. The note is on a failed project with some mostly built units plus more dirt and permits. He’s buying the note for less than 60 cents on the dollar (of face value).

Its probably wise for lenders to take the hit up front to the extent that they’re able today. Banks aren’t contractors and they aren’t developers and when they act as such things rarely go well. Sometimes the right thing to do is to take your knocks and keep on moving - aka “the first loss is the best loss”.

I suspect as more lenders start to realize the depth of the problem we’re in we’ll see more deals like this. Thus far however, I’ve been hearing mixed reviews on the bigger deals. Some of the guys I know are saying the lenders are still holding out for 85-90 cents on the dollar, and in the flailing residential market that just doesn’t cut it.

Smaller multifamilies, as I’ve mentioned here many times, are selling for cheap. We put one under agreement last week at 50% of the last sales price.

When I hear about a bigger deal like the one I mentioned above it gives me some comfort that things are moving, which is really what we want, movement. Deal flow is key to the market getting back on its feet and its the only way we’re going to get over this huge hump we seem to be stuck on. Lenders have to get their inventory out the door and lend again, thats how it works.

Lenders lend.