Facing a New Commercial Reality

slice-leftWhen I am asked, “What do you think my commercial property is worth?” I cringe and feel less than completely at ease with the answers I know honesty demands.

It is not that I am reluctant to be completely transparent with a client. That is the easy part. The difficulty lies in communicating to commercial property investors that they may be facing a new commercial reality.

Our new commercial reality contains several characteristics that make buying and selling, leasing and landlording and other forms of investment more precarious than perhaps in times past.

Heads I Win Tails You Lose

Commercial real estate values are tipping and for some investors it doesn’t matter what side of the coin comes up.

In a majority of major commercial markets commercial property is softening and for those who purchased in 2005-2007, things may be less than stellar. This is also true of commercial real estate markets like Prescott, Arizona.

Owners who purchased in the 2005-07 framework invested at the top of the market…they bought high.

Commercial Investment Reluctance

Investor reluctance is a second factor impacting the answer to the “What do you think my commercial property is worth?” question.

We are in the shadow of hesitation. Lack of confidence is creating a wait and see menality for some investors. This simply means that commercial property owners will need to be more creative with respect to how they attract tenants and buyers.

Commercial Financing Rules

Lenders are implementing both new and more stringent commercial property financing rules. It is simply more difficult to find funding than it was in 2002-2006 and lenders are burning through spreadsheet analysis in an attempt to only fund the most promising and secure loans.

Yes, lenders are lending! But lenders are lending more cautiously and they are less willing to bet on traditional performance with respect to property appreciation. In fact, they are factoring in depreciation based upon performance actuaries present in the market.

All is not lost. We are simply in need of a dose of creativity with respect to investing and divesting of commercial property.

Need new strategies? Call me at 1-877-380-1000 or, if you prefer, you may email me.

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