Are commercial real estate loans easier to find than residential loans today? Had I asked that question back in 2007, most people would have then said “No way.” Today, many investors and brokers may have to really think about it first prior to giving an answer one way or another.
Since the last real estate market peak near 2007, both the residential and commercial market sectors have sadly experienced massive price declines. In many cases, homes, retail shopping centers, land, hotels, and other types of properties have had their values cut in half or more.
Commercial Investment Property & Type of Loans
As it relates to the commercial property sector’s last market peak near 2007 or 2008, many of the existing 5 year fixed commercial loans may be ballooning or coming all due and payable in 2013. In many cases, commercial loans are fixed for shorter 5, 7, and 10 year terms so they must be refinanced or paid off more often than residential loans.
Upwards of 4,750+ CMBS (Commercial Mortgage Backed Securities) with loan balances near $55 billion may need to be refinanced in 2013 alone. Sadly, a very high percentage of these same potentially ballooning commercial mortgages may not have sufficient income to service the existing mortgage debt.
In addition, there may be an additional 6,300+ non-CMBS commercial mortgage loans (according to Bloomberg Financial News) with balances of almost $79 billion that may be coming all due and payable in 2013. Which of these properties may qualify for a new commercial loan though today?
Banks Attitude Towards Commercial Investors & Loans
In many situations, the existing commercial mortgage debt may currently exceed the conservative market value today in 2013 based upon the income and expenses for the existing properties. Yet, some mortgage lenders or servicing companies may accept partial payoffs almost akin to a residential “Short Sale” by way or either a sale or a refinance. Property owners may wish to consider trying to remain somewhat optimistic in spite of their challenging financial position today.
Most banks still don’t want to foreclose on their properties so they may better realize today that a partial payoff may be much better for them than a foreclosure. Many lenders today may agree to some type of a discounted payoff which may be a “Win / Win” for all parties.
Current Commercial Investing Outlook & Interest Rates
The most encouraging part of the commercial real estate industry today is that interest rates continue to hover near records low rate ranges (3% to 5%+). With lower interest rates today, then borrowers may lock into this historically low rates and potentially improve their monthly cash flows significantly.
If lending may hopefully ease up later this year as it relates to both residential and commercial properties, then sales and property values may begin to increase more so than in years past. Once again, it is the availability of capital that may best determine the direction of U.S. property values.
The combination of housing listing inventory levels near eighteen (18) year lows, near record low interest rates, and pent up housing demand have fueled price gains of between 5% and 20%+ in various U.S. housing regions between 2012 and 2013. Let’s hope that the price appreciation trends continue along with a stronger job market and overall U.S. economy!