Commercial Real Estate Investment Changes in 2019

Still a Good Investment in 2019?

“Is Commercial Real Estate still a good investment in 2019?” This is a common question we’ve been asked over the past few months. The answer is unequivocally yes, however, as with any investment, you need a sound strategy and to do your homework before buying in. The market has been shifting for some time, specifically the office and retail sectors, as changes in technology influence tenant requirements. Investing in those markets will take careful planning and due diligence, but the rewards can be significant.

Plan your Financial Strategy

As with all investments, you never want to overextend or overleverage yourself, and this is especially true with any real estate investment. The market can change quickly, so it’s important to be positioned where you can absorb a 10-15% temporary dip in both income and value due to an economic downturn. Rates are still very low, so using debt to finance a transaction makes sense, but the key is to find the right balance between debt and equity.

However, Banks are Pulling Back with Commercial Lending

An inverted yield curve, where the yield on short-term treasuries is higher than that of long-term ones, has preceded nearly every economic recession in US history. As of this writing, that still isn’t the case, but the gap has become dangerously thin. Most economists believe the next recession is not far off, and when this happens conventional lenders such as banks become much more stringent with their lending policy and a lot of the capital floating around the market dries up. When this happens, investors need an alternative.

Hard Money Loans and Private Lenders are a Great Solution

A small, but quickly growing, sector of the mortgage industry is bridge/hard money financing. These lenders are typically focused on short-term debt financing, aka “bridging the gap” between the purchase or refinance until permanent conventional financing can be found.

There is a reason it is called Hard Money, as the interest rates can be 2-3x the rates of a conventional lender, however, the loans are typically interest-only with no principal payments. Loan to Value ratios are also typically 10-15% lower than a conventional lender would be, but true hard money lenders are asset-based lenders. This means they do not look at personal financials, credit scores, etc. and lend strictly based off of the value in the property. Your conventional lenders do not do this, and this can present a challenge for somebody who ran into credit issues or doesn’t show the personal balance sheet lenders are looking for.

H&O Capital’s Commercial Lending Team can help you with your real estate investments.

Backed by the experience of a family that’s been in the real estate business since 1891, the commercial services division of Houlihan & O’Malley specializes in commercial brokerage, private mortgages and advisory services. Buying, selling or leasing commercial real estate in NYC and the tri-state area requires the insider expertise that only an established, reliable commercial real estate firm can deliver. Having been in the local real estate business for generations, Houlihan & O’Malley offers a bedrock of integrity few other real estate companies can claim. When you’re looking for commercial property funding, a hard money loan, bridge financing or professional appraisal services, our team of commercial real estate experts is here to help your business get to the next level. We offer quick closings without all the red tape and headaches of dealing with conventional lenders. This helps you get where you need to go, when you need to be there.

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