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?
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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