Business Real Estate Loans
In general, real estate is a diverse and complicated industry to be in, especially with the constantly fluctuating economy, but there is many evolving areas of the commercial real estate industry that are showing a positive future. There are three primary types of real estate: residential real estate, commercial real estate, and industrial real estate. Commercial real estate, or CRE, is an area of real estate that focuses on properties that are used for business purposes, but within commercial real estate are another three key business opportunities. These include:
- 1. General Brokerage: Commercial real estate agents in the general brokerage specialty focus on representing buyers or sellers by assisting with the sale of a commercial property. Often times, a commercial real estate agent in this field is an independent contractor who works on commission; the commercial real estate agent can even focus on a more specialized area such as retail, office, industrial, and so forth.
- 2. Development: The development area of commercial real estate consists of commercial real estate businesses purchasing land to build a commercial property on (i.e. mall or office buildings). This is typically done with a commercial real estate company, not just an independent contractor, because there are various project needs such as development of the property, project management, and leasing. This form of commercial real estate also involves managing the entire project – ranging from dealing with leases, hiring other contractors, and so much more.
- 3. Property Management: This is an area of real estate that is seen in both commercial and residential real estate. Property managers handle the day to day operations associated with the particular property, whether it is staffing, contracting, or repairs.
After a commercial real estate agent or company decides what area they are in, they then have to start identifying the types of properties they want to work with. This starts with the properties being distinguished as an office, industrial property, retail property, multifamily property, hotel, or land – and these get even more specific within each branch. Suffice to say, the commercial real estate industry is incredibly complicated and diverse.
Commercial Real Estate Industry Statistics
By the third quarter of 2016, the commercial real estate industry saw increased gross domestic product (GDP) at an annual rate of 2.9 percent, mainly due to increased consumer spending. Now that consumers are experiencing better financial situations since the 2008 recession, many commercial real estate businesses are seeing increased profitability. Increased consumer spending is directly correlated to the positive employment growth in the United States. There was a gain of 619,000 net new jobs, with 1.5 million net new payroll positions and 1.5 million in the private sector across the United States, resulting in higher demand for commercial and industrial properties. Things are looking up for the commercial real estate industry and are expected to continue to grow well into 2017 – the National Association of Realtors has shown that office vacancies are projected to decline 9.9 percent, retail vacancies declining from 11.9 percent to 11 percent, and investment sales are expected to rebound thanks to the economy’s comparative strength. While there are many positive economic trends that are heavily influencing the commercial real estate industry, there are many other industry trends that must be considered – and a variety of commercial real estate loan options to facilitate these changes.
Commercial Real Estate Industry Trends
Every industry is being dominated today by the evolution of technology, and the commercial real estate industry in particular has been incredibly slow in adopting this revolution. In addition to technological advancements, many new industry trends and government regulations are drastically changing the commercial real estate industry, so to stay ahead of the competition in 2017, commercial real estate businesses need to be paying attention to these major trends.
- Technology: This is a limited, and not exhaustive, list of the emerging technological trends that every commercial real estate business needs to be implementing. Commercial mortgage lenders are relying on newer technologies to reduce default rates and to speed up the funding process.
- Internet: There are a variety of systems that are being created today to ease the day to day operations of the commercial real estate industry; identifying the needed system and effectively integrating these systems into a commercial real estate industry will be tricky and expensive, but it is a much needed transition.
- Cloud and Mobile Technologies: Commercial real estate agents are always on the go, but too many are not implementing vital mobile and cloud technologies. There has been a wave of commercial real estate mobile apps being developed recently, as well as efficient cloud based technologies that only increase productivity and manage the time consuming day to day operations – allowing any commercial real estate agent to spend more time making money.
- Real Time Data and Analytics: This has been a growing demand from many commercial real estate businesses, especially because there has been a lack of development from IT companies in this area. Things are looking up – growing demand has led to the development of new data driven systems that consolidate and analyze all real-time portfolio and market data.
- Augmented Reality and Virtual Reality: This sounds like something out of a Sci-Fi movie, but it is actually a new technology that many industries (particularly hotels, travel agencies, and real estate agencies) are taking an interest in. Augmented Reality (AR) and Virtual Reality (VR) improvements are allowing commercial real estate businesses to showcase their properties to clients in a way like never before.
- Partnering with Innovators: This is a new trend that the commercial real estate sector has started to utilize more and more. Through partnering with innovative startups (and there are plenty out there), many commercial real estate agencies are seeing the benefits of establishing research, creating innovative industry specific technologies, and creating corporate accelerators. This investment and partnership is helping commercial real estate businesses across the industry.
- Urbanization: This is a growing trend across the world today – the increase in population growth has surpassed expectations, resulting in suburban communities transitioning into more urban areas. With the transition into urbanization happening everywhere comes an increased demand for more public transportation, mixed-use development, and more of a “urban city feel”. But what does this mean for the commercial real estate industry? Rapid urbanization is leading to an enormous demand for housing, retail, office, and all other forms of property. This is only helping to increase profitability across all real estate sectors.
Types of Commercial Mortgage Loans
|Bank||6-10%||3-7 years||14-30 days|
|SBA||6-10%||3-7 years||10-30 days|
|Line of Credit||5-15%||1 – 3 years||7-30 days|
|Asset Based||8-35%||1-3 years||2-3 weeks|
Conventional Bank Commercial Real Estate Loans
Traditional bank loans and lines of credit are the best form of financing available to commercial real estate businesses. With low rates and terms, this is always the best option for a loan. Traditional bank loans require good credit and documentation, and this conventional form of financing is typically a lengthy process.
- Rates: 5-10%
- Terms: 1-25 years
SBA Commercial Real Estate Loans
SBA financing is another great option for a commercial real estate loan. The SBA 504 Loan Program provides small companies real estate loans with access to long-term, fixed-rate financing that is typically given to larger commercial companies. The SBA 7(a) program is used to purchase and/or refinance commercial real estate with amortizations up to 25 years.
- Rates: 6-8%
- Terms: 7-25 years
Asset Based Commercial Real Estate Loans
Asset based real estate loans are generally working capital loans in which a company’s commercial real estate is used as collateral. Asset based loans using collateral come in both term loans and lines of credit. Funding can take as little as three weeks, provided an appraisal is needed.
- Rates: 8-35%
- Terms: 1-3 years