I am pleased to announce my new blog with a focus on commercial real estate and sustainable building and development. In the weeks and months ahead, I am looking forward to reporting and writing about the local and regional economic climate of the South Puget Sound Region, as well as the local, regional, and national news radiating from the ranks of the growing "Green Community."

http://worldwestcommercialrealestate.wordpress.com

On the Economy and the Lending Environment in Commercial Real Estate

There are so many things going on with our country during this economic crisis, but I believe we can surely turn things around for the better with the right leadership in government. I keep my fingers crossed that the next four years brings positive change to our economic outlook. In the meantime, the real estate market must do all it can to stay afloat during these volitile times. The overall sentiment among developers large and small in my area is that the lending environment is unfavorable (no surprise).

At a recent developer roundtable sponsored by the Washington State Chapter of the CCIM Institute, a well-known institutional developer revealed how their 20-year banking relationships are now requiring them to have larger equity positions in their development projects. Smaller community lenders who are still in a position to lend are cherry-picking their deals and one such lender I approached is charging at least 8% for the loans he makes. For developers, the climate is such that many are taking their projects through feasibility and then taking a wait-and-see approach until the lending environment improves. The common sentiment I have heard from institutional developers is that they anticipate starting new developments within two to three years--when the lending environment improves, as they hope.

Investors may find it a bit easier to secure financing for acquisitions if they have a strong financial statement, can acquire properties with a healthy equity position (30 - 40%), and the properties are cash-flowing. Even then, the search for financing requires a concerted effort, as well as generous financing contingency periods to allow for the time it takes to find a lender who is still making loans at reasonable rates; financing that will allow a property to cash-flow until it is refinanced in five or ten years. In this lending climate, a financially strong investor will have an advantage as investment property inventory increase and investment real estate buyers deacrease from the tightening of the credit markets.

As we watch an old administration make the transition into the new, we will see how the future unfolds for us. If this economic crisis has not bottomed out yet, I hope it happens soon enough so that we may begin the process of recovering, rebuilding, and strenghtening our economy, our businesses, and our lives.