Comments (0)

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

Related Commercial Real Estate Articles

Comments (0)

Real Estate Value in the US Double DIPS An All Time Low for 2011 RealtyPartner

Article by Jeff Noel

At the present moment, evidence that the American real estate market isn’t turning around in the near future are becoming more apparent. According to the polls, market prices in the US are at an all time low for 2011… all are happening for a number of reasons.Below are some of the huge reasons cited:Potential increase in interest ratesRecently, interest rates have been relatively low, so an increase would seem inevitable. Essentially, interest rates and real estate value are opposites on a scale and whenever the rates increase utlimately results in a decline in real estate prices. However, regardless of this the banks will find an exit out. Cash paying investors are the true winners in today’s market simply because they waited patiently for this insane price drops.Strict lending policiesAll financial institutions will not have any other option when more real estate goes into foreclosure status, than to implement harsh lending policies. This means that they will need higher qualifying credit reports plus scores; bigger down payments; more expensive insurance premiums; larger fees and considerably more to meet the guidelines for a mortgage nowadays. This results in a limit in the number of people who can buy homes and further affect any possibility of fully recovering collectively.Lots of foreclosuresIn 2011, there will be huge waves of ARMs (adjustable rate mortgages) coupled with interest rates set to go higher from the lower previous rates. These include the 2001 ten year ARMs; 2004 seven year ARMs; 2006 five year ARMs and some 3 year ARMs stemming from 2008. They would be added to the ones that were reset during 2010 and various other creative financing like toxic mortgages so to speak. Considering that those loans will end up past due and then put up for bidding as foreclosed properties, this will cause the real estate values to decrease continuously further without exception.

Introduction of strategic defaultAlthough the mounting issues that the market is now facing, strategic default will soon add to the list. With the emergence of this new technique, the economy could potentially be crippled beyond its current status. The reason why this technique is so dangerous is because it appeals to everyone who owes more than what their property is appraised at, regardless of whether or not they are behind. At one time, it was perceived that renting was wasting money but it can now be deemed as safe or possibly an investment. For example, a monthly rent with 00 value would equate to ,000 in two years, but if the property is swapped default strategically, its a possibility to save 0,000 based on the amount that the market would decline by in a certain location.Additionally, all the mentioned challenges earlier that our real estate market is facing is feeding off one another. So, any escalation in one will result in the others to ignite a downward spiral in real estate value further as a whole.

About the Author

Great real estate article or visit RealtyPartner.com for real estate trends and information.

More Real Estate Value Articles

Comments (25)

Watch My LIVE Broadcasts (On-Demand): www.livestream.com Add me as a friend on Facebook! www.facebook.com Get DAILY GrowBy10 Updates on Twitter! twitter.com Aug. 10 (Bloomberg) — The collapse in commercial real estate is preventing Federal Reserve Chairman Ben S. Bernanke from declaring the economy and financial markets are healed. Property values have fallen 35 percent since October 2007, according to Moodys Investors Service. Thats making it tough for owners to refinance almost 5 billion of mortgages for skyscrapers, shopping malls and hotels this year, pressuring companies such as Maguire Properties Inc., the largest office landlord in downtown Los Angeles, to put buildings up for sale. Negative Fundamental Demand for commercial space comes from employment and the income generated by that employment, said University of Pennsylvania Professor Joseph Gyourko, director of the Wharton Schools Samuel Zell and Robert Lurie Real Estate Center in Philadelphia. Mounting job losses are a really significant negative fundamental, signaling that conditions are going to be tough for the industry for a while, he said. That may spill over into mounting losses at some banks. Forty-seven percent of loans at the 7000-plus smaller US lenders are in commercial real estate, compared with 17 percent for the biggest banks, according to New York-based Goldman Sachs Group Inc.
Video Rating: 4 / 5