Why can ’ t commercial lending be as flexible as residential lending ? Residential mortgage lending for onetofour unit properties has become more automated and streamlined for investors as we move forward here in the 21st century . More homeowners and investors are seeking out experienced independent mortgage brokers who may have relationships with numerous financial institutions , nonbank lenders , or private money sources . With a few clicks of a button , the mortgage professional can quickly find the best financial solutions available for their clients and get approvals within minutes , hours or days .
Commercial property lending , on the other hand , still seems stuck in the 20th century for many commercial applicants . It can be perceived as a “ good ol ’ boy / girl network '' in that the commercial loan applicant needs to have some sort of a longestablished personal relationship with their local community banker dating back to high school , college , or as fellow members at the local golf club before their loan requests are approved . If so , will they be types of friendly handshake approvals or notsofriendly “ take it or leave it ” approvals ?
If the commercial loan applicant is fortunate to find a banker who may consider their deal , this same banker may request that the borrower move their deposits from other financial institutions to their bank before considering the applicant ’ s loan request . Should the loan be rejected either quickly or months later after a rather brutal loan underwriting process that may include a footlong stack of paperwork , the disheartened customer may give up hope and not know where to turn for another lending option .
Today , nonowner occupied residential properties ( onetofour units ) offered as shortterm or longterm rentals , multifamily apartments ( 5 + units ), mixeduse , office , industrial , retail , and special purpose ( auto repair shops , etc .) can all be viewed as a “ commercial loan ” by certain nonbank lenders that don ’ t collect customer deposits like traditional banks . With lower loantovalue ( LTV ) ranges for certain assetbased loan products , the risk of default is lower for the nonbank lenders .
Wealth Creation from Commercial Property Ownership
Let ’ s take a look at commercial property trends and how much wealth was created for those fortunate owners who ' ve learned that it ’ s much better to let their money work hard for them than vice versa :
• The estimated total dollar value of commercial real estate was $ 20.7 trillion as of Q2 2021 . ( Nareit and CoStar )
• By 2050 , commercial building floor space is expected to reach 124.3 billion square feet , a 33 % increase from 2020 . ( Center for Sustainable Systems , University of Michigan )
• 72 % of commercial buildings in the US are 10,000 square feet or smaller . ( National Association of Realtors )
• The typical length of a building lease in the U . S . is three to 10 years . ( DLA Piper )
• Commercial property prices rose by
20 % between May 2021 and May 2022 . ( Green Street )
• An estimated onethird of industrial space in the U . S . is more than 50 years old . ( NMRK )
• For every $ 1 billion of growth in the ecommerce sector , it requires an extra 1.2 million square feet of new warehouse space . ( Prologis )
• Selfstorage commercial unit REITs produced a 70 % market return in 2021 . ( REIT )
• Approximately 69 % of all commercial buyers in the U . S . need financing to purchase properties . ( National Association of Realtors )
• Sales of multifamily apartment buildings increased by 22.4 % year on year in 2022 . ( Colliers )
• Prior to the March 2020 pandemic designation , the industrial real estate sector had grown for 40 consecutive quarters or over 10 years . ( NMRK )
• Industrial vacancy rates nationwide fell below 3.7 % at the end of 2021 . ( Cushman & Wakefield )
• The Inland Empire ( Riverside and San Bernardino counties ) in California averaged an incredibly low 1.2 % vacancy rate for industrial space . ( Commercial Edge )
• California had 27 of the 50 highest office rental prices in 2021 . ( Commercial Search )
• The average annual return for commercial real estate investors is approximately 9.5 %. ( Mashvisor )
• For every retail unit that closes , five new stores open up . ( NRF )
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