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Lending for Small Investors in Commercial Real Estate Markets Records Slight Improvements in 2013

For most commercial REALTORS®, investment activity registered slight improvements over the past year. Members posted gains in transactions of office properties, which took the top spot. Industrial, multifamily and retail/land deals followed close behind.

In terms of valuation, most properties exchanged hands at the $2 million mark and below. The figures indicate that a significant segment of the commercial market is flying below the radar of the established data aggregators, such as Real Capital Analytics. In addition, commercial REALTORS® handled a wide range of properties, from free standing buildings and mixed use, to churches, restaurants and self-storage.

The 2013 Commercial Real Estate Lending survey points to the fact that capital availability has shown signs of easing, but tight lending standards remain the norm in many markets. In 2012, only 31 percent of respondents indicated that capital availability had eased, compared with 70 percent who reported shrinking or unchanged availability. Over the same period, 72 percent of commercial REALTORS® indicated that loan underwriting standards are just as stringent, or tighter than in 2011.

Cash remained a dominant source of financing, accounting for 33 percent of transactions, an increase from the 27 percent figure in 2011. Down-payment conditions remained conservative—71.0 percent of closed sales required a down-payment larger than 20% to secure financing, with 21.0 percent of loans requiring 50%-60% loan-to-value ratios.

Marking a noticeable improvement from last year, 52.0 percent of commercial REALTORS reported having a sales transaction fail due to financing issues (compared with 70.0 in 2011). In addition, 42.0 percent of REALTORS mentioned that they or their clients failed to complete a refinancing process during the past 12 months. Much of this seems to stem from the fact that 72.0 percent of loan underwriters had standards which were just as or more stringent than the prior year.

When asked about the most relevant causes for lack of sufficient bank capital for commercial lending, REALTORS pointed to a twin salvo of reasons: regulatory uncertainty for financial institutions and new and proposed legislative and regulatory initiatives. Reduced NOI, property values and equity came in a close second.

For the full report of the Commercial Lending Survey, visit http://www.realtor.org/reports/commercial-lending-survey.

George Ratiu, Director, Quantitative and Commercial Research

George Ratiu, Research Economist, writes regular economic columns and conducts research in the areas of commercial real estate, international investments, mortgage performance and foreclosures. He produces NAR’s Commercial Real Estate Outlook and manages quantitative surveys, including the Commercial Real Estate Quarterly Market Survey.

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