If you have ever had your eye on a dream commercial real estate opportunity, the time to strike may be now. New data contained in the Trepp Report confirms what economists and real estate brokers have been saying for almost a year. The commercial real estate market is suffering and the market is ripe for qualified investors.
Consider these facts:
· In 2009, commercial sales and commercial loan originations were even lower than in 2008.
· Perceived values of commercial real estate dipped by 29 percent in 2009.
· Vacancy rates for commercial real estate are nearing record lows; office space occupancy is down 19.7 percent. 19.2 percent of retail space is vacant. 13.2 percent of industrial space is vacant and 8.9 percent of multi-family properties are unoccupied.
· Apartment rentals are down 6 percent in the first quarter alone as rental rates for industrial rates are off 9 percent.
Elizabeth Warren, the Chairperson of the Congressional Oversight Panel for TARP, predicted that half of all the country’s commercial real estate loans would be underwater by 2010. Ms. Warren is known as one of the few straight shooters in Washington.
The competition for tenants has led property owners to accept new and costly concessions including state-of-the-art upgrades, months of free rent and guaranteed heating and cooling costs. These concessions have created over-leveraged and delinquent property owners who cannot find refinancing.
In many cases, the only options are distressed sales, foreclosure or short sales; in other words the perfect environment for the well-positioned investor. To complicate the matter further, the Trepp Report indicates that 200 more banks will fail in 2010. These banks are carrying $170 billion in assets.
The bottom line is that investors who have procured financing or who have established successful commercial loan repayment histories will see many opportunities to acquire valuable holdings. The key is to make sure that existing tenants are solid and to line up new tenants in advance of the closing. At the prices these investors can expect to pay for property, they may be able to offer favorable rents that will assure long-term leases.