Commercial Investment Real Estate September/October 2013 - Page 16

FINANCING FOCUS Follow the Money What are today’s most fi nanceable deals? i by Jeff Rauth If you are like many commercial real estate brokers these days, 85 percent of your transactions are lease deals and only 15 percent are sales. Purchase transactions are often a frustrating secondary source of income, as closings are harder to predict, due to the additional components involved, such as value, environmental, title, and, of course, fi nancing. However, this situation may soon change. The next 12 to 18 months will likely be one of the most active periods for owner-occupied sales transactions since the post-recovery period following the sav- ings and loan crisis of the late 1980s. T at’s good news for commercial real estate prac- titioners, especially those who frequently handle deals under $5 million. Why the Uptick? 14 Several market forces currently at work foretell a stronger lending environment in the next 12 to 18 months. T e secondary market where commercial mortgages and Small Business Administration loans are sold should remain strong. T e commer- cial mortgage-backed securities market will continue to experience rocky but brisk growth. Nearly $41.1 billion in CMBS was issued in the f rst half of 2013, according to Commercial Real Estate Direct, 2.5 times the amount during 1H12. Despite a midyear slowdown, experts forecast around $65 billion in CMBS by yearend, almost twice last year’s total. It is widely assumed that CMBS issuance will even- September | October | 2013 tually match prerecession levels of $400 billion annually. Increasing activity in the secondary market means easier credit for borrow- ers, and more liquidity for banks and the overall market. Banks can free up loans on their balance sheets, enabling them to re- lend capital that was previously locked up. Credit parameters will continue to become more f exible and loan terms will get better for borrowers. Lenders will compete harder to win deals: T is is good for brokers and borrowers. Small businesses — the lifeblood of the U.S. economy — are becoming more bankable from a traditional underwriting perspective. T ey have paid down debt and have more liquidity to use as the equity injection on property purchases. Increas- ing revenues make them more attractive to lenders. Many companies have spent the last f ve years cutting costs so their level of prof t may even be higher than in the past. Currently, 90 percent f nancing is widely available with SBA loan programs. Borrow- ers that have prof table businesses won’t have to tie up as much capital in their com- Commercial Investment Real Estate