Are we in the third or fifth inning of the commercial real estate game?
April 7th, 2009
As the stock market now begins to stabilize, hopes of better times appear to be on the horizon for many of us. However, the commercial real estate market still has a way to go. As reported last week, the number of jobs lost has surpassed 5 million since this recession began. With an outlook of continued pressure throughout 2009 and early 2010, companies will continue to cut back and adjust for survival.
This continued downward spiral of job losses only fuels the fire of what is yet to come in the world of commercial real estate. With companies cutting back, their need for office space follows suit, which equals higher vacancy rates and delinquency.
Many new construction projects that entered the market in 2006 and 2007 with hopes of filling the second half of empty spec space now sit in waiting while construction loans come due, and financing is nearly impossible to obtain on half- empty buildings.
Enter the opportunity seekers.
While lenders become familiar with their newly acquired assets, opportunity seekers are waiting in the wings ready to pounce when the time is right. Is the time right? Not quite yet, as many of the lenders have not come to grips with the reality of values and the reality of unloading their newly acquired assets.
One of the biggest problems in trying to determine the value of commercial real estate is the pure lack of transactions over the last twelve to eighteen months. While vacancies are just now starting to rise and new leases are full of tenant perks, getting a handle on what a building is worth is extremely difficult.
What the future brings for commercial real estate values will be highly dependant on how quickly this economy turns and how quickly jobs can be added instead of subtracted. Better days will be here again. Just hang on to your hat or your property if you can, and try to stay in the game.
- Mark Gossman, Minnesota Real Estate Broker
Mark Gossman, Real Estate Broker and Property Manager. Focusing on residential investment real estate and vacation home property management in Breckenridge, Colorado.
Comments
Mark,
Great observations on the commercial market. I would like to share my observations on the financing side of the commercial real estate market.
First, I want to point out that contrary to what many believe, there IS money available to the commercial market. That includes money for smaller projects, as well as money for large Acquisition and Development deals. There really is no limit to the amount of funds available.
Unfortunately, the media has a great deal of influence over a great deal of business owners, entrepreneurs and investors. So much so that many actually believe what the media says.
I won’t go on a media rant here, but it needs to be discussed because it does impact the market.
Coming from the financing side of things, I think the commercial real estate market is undergoing a change. A fundamental shift that will impact the market going forward.
Let me take you back to the 1980’s and the Savings & Loan Crisis. For those who were around back then, you may recall that prior to the S&L Crisis most Americans obtained financing for their home from their local Bank.
However, during the S&L Crisis Banks stopped funding residential loans. Did this mean people could not find financing for their homes?
Did the money simply disappear once the Banks stopped lending? No, it didn’t disappear. It simply moved.
Money does not disappear! It simply moves.
The Residential Mortgage Broker stepped into the market and began filling the void left when the Banks stopped funding.
As a result, Residential Mortgage Brokers became more prominent, and today maintain the lions share of all residential loans.
Fast forward to today. Banks have stopped funding commercial loans. The CMBS market has all but disappeared.
According to the media, the frozen credit markets translate into no commercial real estate funding being available.
According to the media, commercial real estate money has disappeared.
But money does not disappear. It simply moves.
And in this case it has allowed a relatively small Commercial Mortgage Brokerage to become the largest commercial real estate funding source in the Country.
How do I know? Because I happen to be a Branch President for this company, and I know firsthand that while others in the market have closed their doors, we are experiencing explosive growth.
The Banks will eventually get back in the game. But we are creatures of habit. We don’t like change.
And for all of those who are obtaining their financing with our help, it is my belief they will be less likely to go back to the Banks.
Much like what this Country experienced after the S&L Crisis, I think we are in the midst of a fundamental shift in the way commercial real estate is financed.
Because we have access to commercial money the Banks will not be able to match, the door that has been opened by our current economic crisis, is one we intend to keep open for a very long time.
Additionally, with Developers, Business Owners and Entrepreneurs experiencing better customer service to go along with financing when they need it, in times of economic difficulty, Banks will find it very difficult to wrestle away the market share we are grabbing.
If I were a Commercial Real Estate Professional, I’d make sure I found someone like me to partner with now, and going forward to better secure your future as well as your clients future.
We are here to stay! And those that recognize what is occurring in the market, are the one’s that will also grab market share.
I think Warren Buffet said it best when he said, “You want to be greedy when others are fearful, and fearful when others are greedy.”
Most people are fearful today. No thanks to the media. Now is the time to grab market share. Not sit around complaining about the economy.
I would urge everyone in the commercial real estate market to turn off the 6 o’clock news. Toss your newspapers in the trash.
The people writing most of those columns have never owned commercial real estate. They have never sold commercial real estate, and they have never been on either side of financing commercial real estate.
So why let them tell you what’s going on in the market? If you want to sell more commercial real estate, then get out there and do what you love.
Are you allowing the media to dictate your actions, or do you see the opportunities staring you in the face?
Commercial loans are being funded every day. You can’t say there’s no financing. Not to me. So if good loans can get funding, why are you not involved in these transactions?
Because the media says there’s no money?
Posted by Jay Estis on April 7th, 2009