It appears that some slow - very slow - progress is being made in an important area of business, commercial real estate (CRE). According to a number of sources, the long downturn in CRE and CRE lending may have finally bottomed out. A report from the Federal Reserve indicates that commercial and industrial loans rose slightly over the last quarter, and that 12% of large banks indicated they have relaxed lending standards in these areas. Now this is not to say that we are in a true recovery - far from it. It does mean, however, that the “free fall” we have been in since 2008 could actually be over.
In an article in Wall Street Pit (“Is the Slump in Commercial Lending Over”), author James Picerno evaluates the latest news in C&I lending and opines that “there’s a case for cautious optimism.” He explains that a rise in C&I lending would be one less negative factor in the economy and could help move us toward a real turnaround. He cautions, however, that this continues to be a “jobless recovery,” which makes expansion “vulnerable.” Still, Picerno feels this could be a positive sign for the economy.
A report on the real estate website MortgageOrb.com reflects the some optimism and concern as Picerno’s article. This article summarizes the recent report from the Real Estate Roundtable on improvements in the CRE industry. Quoting Roundtable Chairman Daniel D. Neidich, the report points out that “Commercial real estate markets tend to recover from the top down, when higher-quality markets attract new capital and eventually other markets are affected.” But Neidich also warns that the slow growth in employment numbers continues to threaten a full recovery.
Again reflecting some good news in CRE, the venerable Wall Street Journal’s Anton Troianovski points out in his article “Commercial Real Estate Coming Back - but Unevenly” that certain high quality markets are already seeing a rebound in values. He points out that in some markets CRE values have risen 30% from their 2009 lows and that a few select markets “are even approaching pre-crash levels.” As an example he lists the former Mortgage Bankers’ Association building in Washington, D.C., that sold recently for more than double what it went for a year ago. However, the rub is that, as Troianovski explains, “commercial-property values aren’t climbing uniformly across the country.” In many areas CRE property values continue to lag behind what they were financed for at the height of the boom.
So what does all this mean to small business owners now? With interest rates still at some of the lowest levels ever and many property owners in distress, this could be the time to look into purchasing your own building. Many banks are trying to work with borrowers to avoid a foreclosure rush, but some owners will not be able to continue carrying these loans. If you are a business owner and plan to buy a building, get the longest term fixed rate loan you can. Even if you do not buy your owner-user building at the lowest market price, you will certainty be buying right since owning a building is more valuable to the entrepreneur than timing the purchase and the price in an uncertain market. Do your due diligence and study the opportunities, but if you are looking to buy commercial property for your business and you have the wherewithal to do it, don’t wait too long.
If you have questions on how you can use an SBA 504 or 7(a) loan to finance the purchase of commercial property, contact me at the links below. You can accomplish this with as little as 10% down and 25 year fully amortized financing if you qualify. Call me if you have an interest in pursuing a purchase to see how it can work.
Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722.