Dealing With a Slow Commercial Property Market

Have you spotted a deceleration in the sales of commercial properties in your market. Well you definitely aren t the sole one. A up to date report from the research firm Jones Lang LaSalle comparing first quarter US Commercial property sales volume of 2008 to quarter one of 2007 shows... A 69 year over year decrease !! And that s not all... Worldwide Commercial property transactions are down a huge 46 comparing first quarter 08 to first quarter 07. Now those are some impressive numbers.

We've actually noticed a major deceleration in exchange volume in the Texas markets. I had an opportunity to interview the director of Investortours School Monte Lee Wen this week and asked him in particular what he sees as the major cause for the slowdown. Here are his observatons... Investortours : What are you able to say about the CRE Exchange slowdown this article points out? Monte Lee Wen : the amount of sales are definitely slowing down for 2 reasons : The credit markets are making it hard to get financing. Several outstanding sales are taking two to three times longer to shut as well. Banks are being much more conservative in their underwriting which is leading to lower LTVs. The price of capital is skyrocketing as banks increase their spreads and up front costs.

And this all results to heftier costs for backers and, thus, lower return on their investment. Investortours : so that the costs are up and returns are down. How does that can have an effect on the behavior of the Sellers and Buyers? Monte Lee Wen : Well that creates a spread between bid and ask price for Commercial Properties. In this new environment, Sellers are asking too much for their properties and Buyers are providing less than previously. A lot of Sellers are realizing they can t get the costs they could have eighteen months back and that now might not be a fun time to sell.

And lots of the Buyers that were in the market eighteen months back are out the 1031 buyers for instance so we are seeing less transactions taking place Investortours : What do you see per Sales Volumes looking forward? Monte Lee Wen : I suspect the slowdown is non-permanent.

Credit markets will come back to more standard conditions and it'll steadily become better to secure financing.

Sellers will ultimately come back level headed. Over the the remainder of this year and in to 2009 we'll continue to see slower sales volumes than during the past.

In the meantime , there will still be a tiny number of distressed Sellers who have got to sell and will do so at depressed costs. A large amount of the folk we are seeing sell now are in difficulty Investortours : What tips would you give our scholars who are raring to buy? Monte Lee Wen : bide your time. Build your team. Keep your lead generators going and watch for bargain properties as they show up. Guarantee you only offer what the property can explain based on current revenue. And expect Sellers to start accepting your offers again shortly as they are getting a better experience of what their property is truly worth today. I can t tell you how long the slowdown will last ... No-one can. AND in this market remember some more critical things when it comes to getting your deal sponsored Use conservative underwriting in your Proformas Don t expect any more than 75 LTV And write in an additional thirty days extension on your financing period ... Because loans are just taking longer these days.