Commercial and Investment Real Estate Market Starting To Show Signs Of Life by Grant Person

The commercial and investment real estate business has been very soft for the last 2.5 to 3 years in this area. 2010 saw a reasonable up-tick in leasing activity, but sales remained substantially less than 50% of what we typically experience. Much of our investment activity over the past several years was driven by "1031" tax deferred exchange transactions. That has almost completely dried up.

In the last 3 - 4 months, we noticed a definite increase in leasing activity, some sales activity and substantially more prospects calling and looking at properties to lease and to purchase. Investors' psychology has begun to turn, wherein they are now seriously considering making an investment with the cash they have been sitting on. They perceive the market is "bottoming out" and perhaps now is the time to buy. Returns on alternative investments are at historic lows, and real estate can still deliver an honest 6% to 10% cash return.

There's plenty of commercial money available from various to value ratios are probably down in the 60% to 70% range (requiring more cash equity) and securing a loan at a fixed rate for 10 years or more is challenging to get, most want to re-price or call the loan in 5 years. However, interest rates remain at an all-time low. Depending on the property type, rates will range from low 5% to 6.5%, maybe 7%.

Even during this recent down turn in the economy, sellers have been very reluctant to recognize the fact that their property may have lost 20% to 30% of it's previous value...Thus, have not been motivated to sell. That's now beginning to change and we're seeing signs from sellers that they are becoming more motivated. This will create an environment where "deals" can be structured. In addition, we are hearing that some of the banks want to rid themselves of their foreclosed properties.

Higher than normal unemployment still hampers a robust rebound in our area (although we're better off than much of the nation) but considering all of these elements, 2011 looks like it will be a much improved year.

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