No matter how dark the cloud may
seem, there’s always a silver lining.
For those with good credit and good investment sense, the silver lining
just might be the abundant opportunities
in the commercial real estate market.
Banks, reeling from the credit crunch,
have money to lend and need to rework
their books of business. With underwriters on the hunt, creditworthy borrowers
should be searching for good properties
if they want to take advantage of the current opportunities in the commercial
real estate market.
“Banks need to lend, but they want
quality deals,” says Jerry Lehman, CCIM,
SIOR, CEO, president and principal broker of Prudential CRES Commercial
Real Estate SFL. “Interest rates are close
to all-time lows, and the liquidity crisis
on Wall Street has had a major impact on
the commercial real estate market. This
is an opportune time to look at investment properties or leasing space.”
Smart Business spoke with Lehman
about the impact of the liquidity crisis on
the commercial real estate market and
how savvy investors can capitalize on
the current opportunities.
How has the Wall Street liquidity crisis created opportunities in commercial real
Many Wall Street firms are reeling from
losses in the subprime residential mortgage market. These firms began pulling
out of commercial mortgage commitments in order to protect their cash and
liquidity. Also, many individuals with
large amounts invested in money market
auction-rate bonds were shocked to find
that their funds couldn’t be withdrawn
because the market for these bonds disappeared almost overnight, freezing the
money market deposits. All of these
events have had a profound impact on
the commercial real estate market.
There are more sellers than buyers,
prices have fallen and lending rates are
favorable. For investors or executives that have a specific real estate need,
investment goals and good credit, the
opportunity to make a deal has never
been better. While there’s less competition for good buildings, there are also
fewer lenders funding deals because the
institutional lenders are virtually gone.
What are the best deals right now?
Multifamily residential properties are
currently good investments. With many
families losing their homes, vacancies
are on the decline, so apartment buildings are attractive right now. Also, small
and midsize industrial buildings, anything under 50,000 square feet, are a
good investment because there’s always
a shortage of those on the leasing market, so you’ll generally have no problem
finding tenants. Office buildings currently have higher vacancy rates than normal
because many real-estate-related businesses have closed. But if you can hold
onto the property for a while and ride
out the current economy, it will be a
good investment as the occupancy rates improve. The best value of all is vacant
land. Owners are desperate to sell, but
vacant land is definitely a longer-term
hold. So if you invest in vacant land, plan
to keep it for a while.
What are the current lending qualifications?
You’ll need 20 to 25 percent down and
good credit. It certainly helps if you
come into the bank and open a new
account because new depositor relationships will garner a more favorable rate.
You’ll also need strong company or personal financial statements, and the cash
flow of the property you’re considering
needs to be favorable. Banks want quality properties and quality deals right now.
Quality properties are defined as those
with a good location and good demographics for the specific use. For example, if the purchase involves an industrial or office building, they’ll consider the
location, cash flow and the strength of
the tenants in assessing the deal, and
they’ll also consider the physical condition of the property.
What professional support and relationships will investors need?
Even if you’re conducting a small
transaction, it’s advised that you are
assisted by a lawyer and accountant, but
you’ll surely need that type of professional support to act as an advisory team
for larger transactions. If you have a current banking relationship, it’s helpful,
but if not, a qualified broker with solid
community relationships should be able
to refer you to a lender. Also, make sure
your broker understands the marketplace and your needs so they match you
with the right property for your budget
and your investment goals.
JERRY LEHMAN, CCIM, SIOR, is CEO, president and principal broker of Prudential CRES Commercial Real Estate SFL. Reach him at