14 REALTOR® SEP TEMBER/OCTOBER 2015 REALTORMAG.REALTOR.ORG
Lenders Return to Commercial
It took a while, but commercial real estate
transactions are finally gaining traction.
REALTORS® who specialize in commercial deals are reporting a solid 35 percent
increase in transactions over the past
12 months. Recovery time following a
recession is typically 18 to 24 months, but
this cycle lasted four years. It was a hard
punch. Business has bounced back and,
fortunately, should remain brisk.
The improving economy and an
improved lending environment are the
primary reasons for the gains. A net
increase of 12 million jobs from the low
point five years ago has boosted demand
for o;ce, retail, warehouse, and indus-
trial spaces. That’s helping to push down
vacancy rates and push up rents in all
But it is the second factor—lending—
that is making the biggest di;erence. In
our latest survey of commercial practitioners, 42 percent said they’re seeing
credit easing, while only 20 percent said
they’re seeing stricter conditions. The responses are vastly di;erent from the last
few years, when nearly all respondents
reported greater di;culties in obtaining
credit to get their deals done.
And yet hurdles remain. A large number of commercial practitioners continue
to see their clients’ deals hamstrung by
tight credit requirements (albeit less tight
than what they previously experienced).
Of those whose clients managed to obtain financing, more than half had to put
down at least 30 percent.
There’s a reason for these challenges.
Most practitioners are engaged in deals
of $1 million or less, and their clients rely
mostly on lending from local community
banks, not from Wall Street or large financial institutions. Commercial loans don’t
carry government backing—regardless
of their size. Therefore, lenders proceed
with extreme caution.
That absence of government guarantees is why it took so long for the sector
to recover. This is a good reminder of the
importance of the FHA and Fannie Mae
and Freddie Mac regarding credit flow as
well as the advocacy role of the National
Association of REALTORS®. Think of how
much more quickly the residential sector
recovered after the slowdown—thanks
to government backing of those federal
entities. Yes, commercial lending has
faced a slower recovery, but with community lenders now getting back into the
sector, it’s a good bet we’ll see continued
Lawrence Yun is
NAR chief economist.
Monthly rents have been climbing steadily since
the economic recovery began in 2009, while
monthly mortgage payments have dropped.
The result is a wide gap between the growth
rate of rents and mortgage payments. The trend
lines give renters a greater financial incentive to
Source: July 2015 Report on the
REALTORS® Confidence Index, NAR Research
MARKET PULSE The second half of 2015 started on a positive note, with home sales
steadily inching up. They’re on track to hit 5. 6 million by the end of the year. Interest rates remain low
but home prices, fueled by tight inventories, continue to rise, squeezing first-time buyers.
EXISTING-HOME SALES Seasonally adjusted annual rate, which is the actual rate of sales for the month,
multiplied by 12 and adjusted for seasonal sales di;erences. 2014 data reflects final seasonal adjustments.
INVENTORY Number of existing homes on the market at the end of the month.
PRICE National median.
2. 24 Million
5. 59 Million
MORTGAGE PAYMENT GROWTH | RENT PAYMENT GROWTH
SUPPLY & DEMAND
All trend lines are from July 2014 to July 2015.