When it comes to investing of any type, timing is everything. If the economy stays the course it is currently on, now is the time to invest in commercial real estate to take advantage of increasing cash flow and equity appreciation that is only a few years in front of us.
There are many ways to calculate the value of commercial real estate depending on the investors planned use for the property. Also, different sectors of commercial properties have been affected differently during the economic crisis. All of this makes it difficult to determine the average decline in commercial real estate values. Most experts tag the average decline somewhere around a 40 percent since the peak in 2007.
Loans on properties financed at 2007 levels are starting to have balloon payments come due that the banks won’t refinance because the property value is significantly less than the outstanding debt. This is brining a flood of distressed commercial properties onto the market that will sell at deep discounts.
Another component of the perfect storm is the tsunami of cash the Federal Reserve has sent into the economy in the form of quantitative easing. Those hundreds and hundreds of billions of dollars are certain to bring substantial inflation as the economy recovers. That inflation will translate into rising rents for commercial tenants. That means you invest for less today and are rewarded with rising cash flow in the near future.
Another component of the commercial real estate perfect storm are the low interest rates available to leverage your commercial investments. Depending on the use of the property, second quarter 2012 average commercial interest rates varied from 4.67 percent for apartment buildings to 7.7 percent for golf courses (source: RealtyRate.com). These loans are not restricted to large banks. Plenty of competitive private funding is interested in making commercial loans as well.
Deeply discounted sales, rising rents, and low cost financing will converge into the perfect commercial real estate investment storm over the next couple of years but you need to make the move soon or you’ll be on the outside looking in. Don’t hesitate to contact me to discuss your investing options today.
All the Best,
Peter Vekselman
PS: Private Real Estate Investment Coaching Available:
http://coachingbypeter.com/mki/