By Carrie Kreydick and John-Paul Wolfe
Everyone has read the real estate headlines, and we all know that the residential market has gotten a lot of attention in the last couple of years. Now, all eyes are focused on the commercial market to see if it will head down the same path. But does commercial real estate truly follow the residential market? Is it inevitable that commercial sales and leasing will have the same difficulties that we see in the current residential market? We don’t think so.
The playing field of the commercial real estate market has definitely changed since the glory days of residential, but in 2008, transactions are still getting done and business is still moving forward. The deals are tougher, negotiations are harder, market times are longer and the participants want to not only get a deal, but a steal. It’s challenging to complete a transaction, but at least it’s still possible.
We’ve seen residential agents looking to increase business by getting into commercial, thinking that it’s the last source of revenue in this market. We’ve also seen commercial agents scrambling to put deals together while their corporate clients pull back on expansion plans in an attempt to weather the storm. Landlords are scrutinizing potential tenant’s business plans, financials and track records more than ever, and investors and seasoned tenants/buyers are taking their time looking for the perfect property.
Retail was once the afterthought of the project, but slow residential sales and tightened credit markets are putting the squeeze on developers to get their vacant retail space leased. But at the same time, landlords are required to maintain projected rental rates and only lease to “credit worthy” tenants in order to keep value in their projects and secure financing to see the projects to completion. These conditions would seem to suggest that the current commercial real estate market is a difficult place to make a living – and it is. But good commercial agents can thrive in these conditions.
When the real estate market was on fire, landlords and sellers were selective about who they would deal with. If you had a good location, you barely needed a commercial agent’s assistance to find a quality tenant. In this confusing market, many of the large, regional and national corporations are putting new sites on hold, and even canceling leases that were signed or in negotiations. This change in strategy has created an opportunity for the independents, the franchisees and the seasoned business owners that operate locally. They understand the current economy and the areas in which they compete and are taking advantage of the corporate slow down to grow their businesses.
Despite the newspapers and television reports, there are many businesses (retail, service, office and industrial) that still need to lease or purchase space, regardless of the current real estate market. Their desire to move, expand or contract is being made out of necessity for the future of their business. And while buyers and sellers, landlords and tenants are still coming together on terms, the financial meltdown is definitely playing a role in closing the transaction. Mortgage and business lending practices are being scrutinized with a magnifying glass and borrowers need to be ready with concrete financial and track records, a sound business plan and equity. In case you missed it, yes, equity is now recommended to buy a property or open a business, but in a standard commercial transaction it has always been a requirement.
For commercial loans it’s suggested that borrowers have at least a 20 percent to 25 percent down payment available and, in this current market, the borrower should always speak with their lender prior to making an offer. Borrowers need to confirm that the bank that they have always dealt with has not pulled back too far in their lending practices amidst the current market paranoia. But have no fear, there is plenty of money available to fund the average commercial purchase. If your client has good credit, a down payment and wants a sound commercial property for his business or investment, now is a great time to buy. Rates are low and sellers are eager to deal with a qualified buyer.
We are busier than ever and nearly all of our transactions are being completed with strong, locally-owned entities. Our active and closed transactions include user/investment acquisitions, office/warehouse tenants/buyers and numerous retail leases with franchisees and other local service/retailers looking to take advantage of current conditions. Although corporations may be reluctant, people are doing deals in Chicago.
With that said, agents need to be vigilant in the fundamentals of brokerage. In both the residential and commercial industry, the days of showing around a tenant or a buyer without a signed exclusive are over. This is a tough market and when money is tight, people tend to look out for their own interests above all others. If an agent does not take the time to get their paperwork in order, they will only have themselves to blame when a deal is cut around them or the client decides to work with another agent. Keep the clients and the attorneys under control, and keep your eyes on the prize — getting the deal done.
CARRIE KREYDICK IS THE DIRECTOR OF BUSINESS DEVELOPMENT AT NEW WEST COMMERCIAL AND JOHN-PAUL WOLFE IS THE DIRECTOR OF COMMERCIAL BROKERAGE AT NEW WEST COMMERCIAL. KREYDICK CAN BE REACHED AT CKREYDICK@NWRCHICAGO.COM AND WOLFE CAN BE REACHED AT JPWOLFE@NWRCHICAGO.COM.
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