Now is one of the best times to purchase commercial real estate in the history of the United States. You may be a little surprised or even skeptical to hear this, after all the economy and financing is still problematic. We are going to explain why despite these challenges that now, really is a once in a life time opportunity to purchase commercial real estate.
Financing Purchase Transactions
First of all, financing purchase transactions for owner occupant (meaning for your business) type loan requests is viable, and much more so than other types of commercial mortgages. The government has stepped up, to back these programs, which have allowed these loans to remain viable. Terms on these loan programs are strong with 90% financing, and low, long term fixed rates.
Secondly, the secondary market, where commercial mortgages are sold, for these government backed loan programs, is very healthy and the demand for these loans is strong. This enables banks to fund your loan than turn around and sell it for a good profit - and get their capital back. Than they can go out and finance another loan; because they have enough liquidity on hand to do so.
Please keep in mind that other commercial mortgage programs, such a conventional, investor, etc remain difficult. Refinance transaction also remain problematic because 1. Property values have dropped substantially and 2. Loan to value requirement have also dropped substantially. These two components have created an almost perfect storm to make refinances difficult to finance.
Owner occupant purchase transactions are the main exception to the credit crisis. With a purchase, you are not trying to justify the value - your are establishing the value with the agreed upon purchase price. So, if your business is cash flow positive, and you have 10% in cash to invest, you should be able to get your commercial real estate purchase financed.
Property Values at Historic Lows
Property values have dropped 30 -40% in the last 3 years. Historically, after a down cycle, such as after the Savings and Loans Crisis, property values came back up rapidly, after the banking environment stabilized. We believe that the same dynamic will take place here. After the Commercial Mortgage Backed Securities (CMBS) market, for conventional investor deals is fixed, money via Wall Street will rush back into the market allowing for eased underwriting standards and more aggressive funding for all loan requests. In turn, property values will increase.
Keep in mind that in 2010 we have already seen a doubling of transactions (issuances) on the CMBS market compared to 2009. Sure you may say that the aggregate amount in 2010 is far less than what occurred in 2006 or 2007, but it IS coming back. And, never bet against the creativity and greed of Wall Street. Most importantly the investor demand is there - the challenge has been finding loan request that fit their current underwriting standards.
Many business owners will be kicking themselves in a few years that they didn't take advantage of one of the best opportunities to purchase commercial real estate since the Great Depression or at a minimum since the S&L Crisis.
