Tight lending standards, particularly for small businesses, appear to be blocking a recovery of the commercial real estate market, according to the National Association of REALTORS® (NAR) Commercial Real Estate 2012 Lending Survey.
"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.
"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," said Yun.
More than 13,000 major properties valued at $2.5 million or higher traded hands in 2011, according to Real Capital Analytics. Sales volume in 2011 increased 51 percent over 2010 to $205.8 billion, with the lion's share of lending funds coming from big banks. Other funding sources include insurance companies and institutional investors.
The REALTOR® survey shows small business transactions rely heavily on smaller regional and local banks, and small private investors, for lending capital. Respondents indicate nearly 30 percent of smaller commercial properties are purchased with cash, reflecting the tight credit environment, and some are seller financed.
"If real estate is to fully recover, the lending industry needs to do its part by employing a more flexible approach to financing and making loans more accessible to creditworthy borrowers and small businesses," said Suzanne Yost, president of the Silicon Valley Association of REALTORS®.
The most common types of property transactions referenced in the survey were multifamily, land, warehouse, suburban office and retail strip centers. Other property types include industrial flex space, central business district office, freestanding retail, and restaurants.
Long-time investors who never had a problem getting a loan in the past are now being declined. More than half of respondents say lending is just as stringent as a year ago, while 23 percent say it is more stringent; 20 percent say it is less stringent but not near historical averages. Members also complained about banks being over-regulated, and refinancing being denied due to stringent internal lender underwriting requirements or low appraisal valuations.
The Commercial Real Estate 2012 Lending Survey was conducted in April 2012, among a random sample of 32,459 REALTORS® with an interest in commercial real estate. A total of 474 responses were received, for an overall response rate of 1.46 percent.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.