The underwriting of commercial real estate loans is part art and part science. When approaching the bank for the capital your transaction needs, it’s important to be able to see the process from all sides. Underwriters will tell you: what gets the benefit of the doubt in underwriting decisions is detail – the more you provide to the lender, the happier and more agreeable that lender will likely be.
So did any of the commercial property deals you touched in the past five years or longer use financing? Let me guess: the answer is yes, of course. Developers acquiring or improving commercial assets such as land or buildings tend not to self-finance. They often turn instead to our pinstriped friends at the banks for adjustable-rate loans – adjustable, more or less because long-term fixed-rate commercial loans are offered less and less by banks.
Our pinstriped friends over at the Mortgage Bankers Association released the 2Q 2012 Commercial/Multifamily Survey today, and announced a series of positive findings.
The Federal Reserve has issued some changes concerning commercial real estate. One is a clear positive in its new Beige Book, or collection of economic conditions across the country, and another change is more ambiguous — a proposed update in the Fed’s capital requirements made of banks.
In spite of the banking industry’s central role in causing the 2008 meltdown, and its enduring role in prolonging the resulting credit crunch for so much of commercial real estate, new indicators show a market growing once again. It’s important to understand what the cause and effect relationship is here. It’s our role — as brokers, agents, investors and reps — to work to create the economic activity and financing demand that brings our bashful pinstriped friends out of their shells. It falls to us to reintroduce them to their role: capital allocation. And we’ve been doing better.