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Why Commercial Real Estate is Strong in 2008

Article by Anthony Seruga and Yolly Bishop

Unless you’ve been living on Mars, you’ve heard horror stories about the subprime mortgage melt down, and the hazards of a debt-fueled bubble and unrestrained mortgage lending. If you’re a commercial real estate investor, one of the operative questions is “Will this impact me?”

The short answer is “Yes, but not as badly as you might think.” First of all, there’s some compartmentalization in the real estate debt industry, and more importantly, the odious concept of “third party mortgage broker” was laughed out of the commercial real estate market post haste. (Most commercial real estate lenders are insurance companies, who are looking for long term returns and asset preservation, rather than trying to make a quick turn. What this means for you is that while credit lines for home loans (and shady, shaky, bizarre home loan products and derivatives based on home loan products) are getting mulched, loans remain strong for commercial real estate investors.

Indeed, because most banks are taking a bath on bad debt, they’re actively looking for nice, stable business to business loans. From the financial services sector, commercial real estate loans are a good deal; the people who take them out have established credit ratings, and they have an income stream (from leasing and resale) that keeps the cash flow positive, which helps the banks avoid liquidity issues, such as the one that sunk Bear Stearns. Because you’re working directly with the bank, you have a much greater level of surety in getting your commercial real estate loan.

On top of that, there are some hopeful signs for commercial real estate as a segment. The house construction boom burst in late 2006; the mortgage melt down was written clearly on the wall in the spring of 2007…yet new office space starts went up around 15% as of the third quarter of last year. (That growth wasn’t repeated in the fourth quarter, as more investors took a wait and see attitude.)

The people who invest in US commercial real estate are people looking for long-term holdings and revenue streams rather than “flippers”. Commercial real estate is a good longer term, low risk core investment, and the sort of investment that companies trying to preserve assets move into. Likewise, because of the weak US dollar, commercial real estate investing in the US is appealing to foreign interests and sovereign funds. Furthermore, beyond the shambles the dollar is in, the United States is still an appealing investment target for commercial real estate. It’s still the largest economy in the world, and it’s still the engine of innovation and entrepreneurship. It’s easier to start a business in the US than nearly anywhere else in the world, which means that it’s easier for a commercial real estate investor to find tenants to cover the cost of the mortgage. The US’s comparatively light regulatory burden (compared to Europe), and near total transparency in banking laws (compared to Asia) make it appealing for a number of solid reasons.

Most of those investors are looking to get some return on their capital, which furthers the appeal of business related real estate investing. This growth potential is already being actualized – in dollar amounts, commercial real estate demand grew by 40 billion dollars last year…. however, in order to capitalize on it, you’re going to need to work harder structuring the mortgage and payment agreements. You’ll have to ask more questions, and provide a greater proof of assets to get competitive rates, just because investors are (justifiably) skittish after seeing the credit markets implode.

On the flip side, that kind of conservative investment strategy will help you in the long term, as market corrections won’t sink your commercial real estate ventures.

About the Author

Tony Seruga, Yolanda Seruga and Yolanda Bishop of Maverick Real Estate Investments, Inc. work with builders, developers and other players in the commercial real estate industry to acquire and develop properties. They use progressive investment strategies that have proved extremely profitable. In addition to their own deals, they teach both seasoned and inexperienced investors how to be big players in the game. Visit the website for more info.s

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When it comes to owning property many people around the world will tell you that this is a lifelong dream. While once an opportunity that seemed to be reserved for either the wealthiest or the most miserly among the general population home ownership is now something that is accessible to a larger segment of the population than ever before.

This is good news for many but for some can lead to confusing encounters with mortgage brokers and serious sharks along the way. The best advice that anyone can give someone attempting to embrace the dream of real estate ownership is to deal with a reputable company when it comes to obtaining a mortgage. Even when dealing with reputable lending companies you must watch out for those who do not have your best interest at heart.

If you would like some very practical advice when it comes to getting a mortgage, then you are at the right place. First of all, avoid lenders that are encouraging you to take a loan for more money than you are comfortable repaying. Foreclosures are at a record high when it comes to the mortgage industry at the moment because of predatory lending practice on behalf of some mortgage brokers. These practices include convincing people to borrow more money than they could realistically hope to pay over time and have any quality of life as well as convincing homebuyers to take out adjustable rate mortgages in the beginning in order to procure lower rates.

Shop around before you decide to buy when it comes to mortgages. This doesn’t mean to actually apply for mortgages all over town but do the research and compare rates before applying with any one company. Talk to several different brokers and find out what they have to offer you that the other company down the road cannot or will not offer. Keep in mind that mortgage companies will offer everything under the sun from free toasters to free vacations in order to get you to go with their company. The proof is in the terms however. It is simply not worth that free toaster if you are going to end up paying a 6.9% interest rate instead of a 5.9% rate. You will have paid for that toaster many times over in the process of paying the mortgage.

Even after you’ve applied for a mortgage, if the deal seems to be going south check out your other options. There are all kinds of problems that crop up along the way. You are not marrying the mortgage broker. Nine times out of ten you aren’t even making any sort of commitment at all to your mortgage broker. You will however be living in the house you select. If there is a problem with the mortgage company for the specific home you want do not hesitate to change in order to get the home you desire for your family rather than allowing the mortgage company to dictate what kind of home you can buy.

I mention this because we had a very similar problem when we purchased our turn of the century home. The mortgage company didn’t think the home was worth the risk because of its age. We saw the beauty and the potential in our home that is coming along quite nicely and managed to be approved and financed in short order with another mortgage company. If this was the case in our situation, chances are that it will work for others as well.

In all honesty, it is nearly impossible to buy a home in this day and age without taking out a mortgage. It is best however if you see the process as a learning experience rather than an abject lesson in intimidation. This is your home and your money that will be spent in order to purchase the home. You are asking them for a loan but quite frankly, they need your business. Do not hesitate to shop around for the best deal with a mortgage just as you did when finding your home.