who are just now pulling out of the economic slowdown,
starting to enjoy the recovery and have confidence again.”
These local companies are also expanding, which means they
are in need of greater space. Transactions are being financed by
a hodge-podge of credit unions, regional and local banks, and
start-up financial institutions spun off from the big nationals,
especially Bank of America and Wells Fargo (formerly locally-based Wachovia).
“I’ve done 10 to 15 of these deals in 2014,” says Osborn.
“Recently, I had a client purchase a building for $515,000. He
put down 20 percent and financed the rest at 4 percent interest
on 20 years. A local bank did the deal.”
Sometimes it takes a little more work.
“I recently closed on a building that had been on the market
for quite some time,” Osborn recalls. “We found a tenant who
wanted to lease for five years. The owner didn’t want to lease,
so we found an investment group to buy the building. The
financing was similar to the last story, 20 percent down, 80
percent financed, and an interest rate at 4. 25 percent. With a
tenant in hand for years, it was easy to get financing.”
The wider situation is that the mainstream lenders don’t go
small, says Osborn. “They don’t finance the single-tenant,
owner-occupant buildings under $1 million. So, most of us in
this market have gotten set up with the regional and smaller
local banks, developing relationships.”
To some extent, big cities face the same situation. Tom
Davenport, SIOR, president of Lavista Associates in Atlanta,
also reports extensive local banks activity.
“Community banks took the biggest hit in the downturn,”
says Davenport. “Now they all have a push to generate loans
and increase yields. The local banks are lending. Certainly on
owner-occupied real estate they are extremely aggressive.”
The Atlanta metro is geographically wide-spread and when
asked if there are limitations even for the local banks, Davenport
says the far exurbs remain a risky bet. “If you had a busted
shopping center that couldn’t be reconstructed in the next five
years, the lenders would shy away,” he says. “However, if you
have a good story, financing might be available.”
As an example, Lavista was involved in the acquisition of
what Davenport called a “well-located suburban retail center”
that lost two major tenants and was reduced to 25 percent
occupancy. An investment group acquired it at an “attractive
price” and as a true value-add play. The investment group also
had one end-user in pocket and because of that it was able to
obtain 50 percent loan-to-value financing. Not the best LTV
around, but pretty good terms considering the shopping center
was only 25 percent leased at the time of purchase.
“There are still a few situations where it is very challenging,
particularly in tertiary markets and locations, and product types
off the beaten path,” says Silverstein.
As an example, Silverstein’s company financed two retail
centers within a week of each other in 2014. One was in
Lexington, Ky., population about 300,000, and the other Lake
Charles, La., population under 100,000.
“There was a substantial difference among the lender pools for
the two, very similarly profiled assets in the market at the same
time,” Silverstein says. “Lexington is a big enough city that a
lot of lenders would still go there Lake Charles was not.”
Also problematic for liquidity are short-term lease rollovers
except in primary markets. In the instance of the latter, what’s
particularly challenging is a situation where there is a sole
company in a single-tenant building and the lease is due in
three years or less. Sometimes in multi-tenant buildings,
all leases roll over in the near term, and financing for those
buildings can be difficult.
Across the pond, European commercial real estate markets
also appear to be greased with liquidity, and transactions in
2014 were ample.
Indeed, the problem in Europe is “too much liquidity and no
product,” says Hans-Ulrich Berendes, SIOR, CRE, FRICS,
CEO and founder of Berendes & Partner Consulting GmbH/
CORFAC International, Germany.
“Banks are lending money,” Berendes says. “LTVs are going
up to 75 percent. And don’t forget Europe has a lot of insurance
and equity companies — and they don’t know what to do with
their money so they are lending as well.”
Even in Europe there are limitations. Outside of Germany and
the United Kingdom, a lot of capital has been flowing to Spain,
where the market is more opportunistic. However, if you
want to do real estate business in Spain, you need to import
your capital because as Berendes says, “the banks aren’t
In Spain, the banks are instead happy to get rid of their
distressed loans. “Why should they get back into real estate
lending,” asks Berendes. “The main players are banks and they
are selling their loans and assets.
The real estate recovery could be fragile in Europe as well.
As Berendes observes, office rents have flatlined despite Class
A office buildings in gateway cities being sold at extremely
low cap rates.
“That’s a problem,” Berendes muses, “because that might
mean there is a bubble again.”
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