Tight Lending Hampering US Commercial Property Recovery

According to the latest survey of the US commercial real estate market by the National Association of Realtors, while the commercial investment market showed signs of recovery in 2011 it was hampered by tight lending in the lower end of the market...

According to the latest survey of the US commercial real estate market by the National Association of Realtors, while the commercial investment market showed signs of recovery in 2011 it was hampered by tight lending in the lower end of the market.

"This is very much a tale of two markets.  There have been notable improvements in capital for large commercial transactions valued at $2.5 million or higher, but there remain significant challenges for small business," said NAR chief economist Lawrence Yun.

"Our Realtor members typically are involved in helping commercial clients with purchases under $2 million, where a lack of capital has caused two out of three respondents to report deals have fallen through.  Given that most jobs are created through small business, the lack of capital is hurting small businesses and the overall economic recovery,” he said.

A separate report by Real Capital Analytics showed a strong increase in sales at the higher end of the market, with 13,000 properties worth over $2.5 million sold to a total value of $205.8 billion, which is a 51% increase over 2010. Most of the lending on the big deals came from big banks, while small businesses are still reliant on regional lenders, and even private investors for funding.

Making it hardly surprising the RCA also report 30% of transactions below $2.5 million were cash-transactions.

According to the NAR report over half of respondents believe lending is just as tight as it was last year, while 23 percent believe it is even tighter. Twenty per cent believe the criteria are less stringent than a year ago, but still nowhere near where it needs to be for a healthy market. Realtors also report a huge backlog of unsold properties or properties needing to be refinanced, which is putting a strain on the recovery that won't ease until lending does.

- Monday 07 May 2012

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