Browse Tag: nar. nar commercial

The SBA Loan Market: Financing In Greater Demand Than Ever

Nationally speaking, the finance of owner-occupied commercial real estate seems to never get significantly easier. Our current national economic conditions of recovery have not yet heated up the average enthusiasm of bankers for financing sub-$2M expansions in most real estate sectors, which ensures a more or less permanent lending gap affecting small business that Congress has recognized and addressed with the creation of the Small Business Administration.

Dating back to the Herbert Hoover administration, what eventually became the SBA was established by Congress to help businesses hurt by the Great Depression of 1929-39.  Shepherded along by Franklin Roosevelt, the program evolved during World War II to assist smaller suppliers with loans in competing against huge corporations for manufacture of war materiel.  The SBA we know today was created in 1952 by Congress and signed into law the next year by Dwight Eisenhower, spinning it off from the US Department of Commerce into the standalone agency “under the general direction and supervision of the President”.

7(a) – The SBA’s Keystone Loan Program

SBA’s lending and programs are many, but the biggest and most used is called 7(a) Loan Guaranty, where loans up to $5M are available to business for a wide range of purposes including real estate financing.  Terms can reach as long as 25 years while most loan repayments are shorter than that.

Fixed-rate 504 loans

While SBA offerings under its 7(a) program are fairly well known, less widely known is the 504 Certified Development Company loan program. Offering long-term fixed-rate loans for purchases of real estate or equipment, 504 is lauded for lower costs because the fixed interest rates tend to be below-market.

Intermediaries called Certified Development Companies commonly secure 40% of such loans, with 10% coming from borrowers and the remaining 50% coming from a private lender under SBA guarantee. According to the most recently published SBA Quarterly Lending Bulletin, the aggregated number of small business loans outstanding reached almost $600 billion, reflecting a rise year-over-year of 1.7%.

Both commercial industrial (C&I) and commercial real estate (CRE) loans make up small business loans.1 A careful look at these loans shows that they continue to indicate progress in capital availability for small businesses. For example, C&I continues to maintain a positive uneven growth (Figure 2). In addition, the decline in the small business share of CRE loans has slowed. C&I loan standards changed little in the first quarter of 2015, but bankers reported easing standards and terms on loans secured by nonfarm nonresidential borrowing (Federal Reserve’s Board Senior Loan Officer Opinion Survey). While there was not a significant change in demand for C&I loans, respondents reported that the demand was stronger for all CRE loan size categories.

The reminder is that SBA financing is a heavily-used option for the commercial real estate deals that are in the reach of professionals in secondary and tertiary markets.  As the recovery struggles to spread itself evenly across all the scales of local market in the US, 7(a) and 504 programs are there to make that recovery felt in every corner of the economy.


The Extinction Of Shopping Malls?

Shopping mall

Tea leaves at the ready, quite a few heavy hitters in commercial market prognostication have envisioned the US marketplace circa 2039. One in particular caught my eye:

As Ken Riggs, CEO of Real Estate Research Corp. puts it: “Most shopping malls will be extinct,”

“[The shopping center market] has been a Darwinian environment since the 1990s with the advent of big-box retail and the ‘Wal-Marting’ of the world—and it will stay that way.” In other words, expect malls to continue their decline due to the rise in e-commerce, with only those consistently producing very strong revenues still doing business in 25 years.”

(Over)supply And Demand

If you ask me, there’s two problems with this: Darwin’s concept is misapplied here (actually the phrase is attributed to a different scientist named Spencer.) “Darwinism” is regularly misapplied in business writing to mean “survival of the fittest”, e.g. describing an arena where competition and inexorable laws of supply and demand settle all questions of capital allocation. That implies a efficient market. But nobody could look at shopping malls nationally and imagine that it’s an efficient marketplace: generally speaking, supply is so heavy and demand so comparatively flexible and spotty — again, I’m speaking nationally in the aggregate because many individual markets are different — that the only thing you can say about its efficiency is that its’ efficient at building shopping centers.

The “Walmarting” or consolidation of the retail marketplace is what happens when aggregate consumer demand remains unsatisfied and needs a new home.  That’s happens when it makes sense to aggregate that demand under one roof.  But we have plenty of indications that demand itself isn’t being shifted per se, but was overestimated in many places.  Waves of closures such as the recent ones of national chains lead us in this direction.

In fact, there are national numbers that imply that supply of retail space in the US was on the high side to begin with.  According to the 2007 Economic Census, there were 1,122,703 retail establishments in the United States and a total of 14.2 billion square feet of retail space. That means that there was approximately 46.6 square feet of retail space per capita in the U.S., compared to two square feet per capita in very rapidly growing India, 1.5 square feet per capita in Mexico, 23 square feet per capita in the United Kingdom, 13 square feet per capita in Canada, and 6.5 square feet per capita in Australia.

These things say “correction” to me. New Economic Census numbers could illuminate this further when they begin appearing later this year.

Not A Zero-Sum Game

But the shifts in shopping centers and the role of demand isn’t the only place where the predicted death of the shopping center falls short.  It’s in the claims about electronic commerce.

I agree that twenty-five years of growth in e-commerce is likely to come, and that some of that will be at the cost of traditional retail. Yet we have to remember that brick and mortar vs. e-tailing is not a zero-sum game all the way.

The fundamental need of Americans to put their hands and eyes on products hanging on racks, to travel, to make a day of it, to, in a word, shop in the physical world, is in my opinion unlikely to radically diminish in twenty-five years. The industry may have overbuilt retail space, but it hasn’t overestimated what the personal automobile and consumer freedom really imply: choices for consumers are the life blood of our consumer economy. To the degree that electronic commerce has displaced purchasing in physical locations, it’s because of the net addition of choice and an opportunity for convenience.  That doesn’t mean every choice made is best made online. Far from it: we will always have physical bodies and needs beyond what shipping goods can deliver.  We will always need to spend time with some prospective purchases.

Extinction for shopping malls just isn’t in the cards.

Shopping mall (Photo credit: pix.plz)

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NAR Treasurer Bill Armstrong Podcast: 2013 Look-Ahead

National Assciation of Realtors, Washington, D...
NAR Offices, Washington DC

NAR Treasurer Bill Armstrong’s 2013 look-ahead podcast summarizes 2012’s achievements for commercial REALTORS® while at the same time looks into the tea leaves for 2013.  The highlights:

  • Amid modestly improving commercial market fundamental, NAR expects vacancy rates to decline in all 4 major commercial sectors – office, retail, industrial, multifamily.
  • In June 2012 NAR was able to successfully gain a full year extension for the National Flood Insurance Program. This program provides access to affordable flood insurance for millions including many business owners.  It’s the culmination of a successful multiyear campaign, and means business owners will continue to have acces to the flood insurance and not be forced to take their chances in the virtually nonexistent private flood insurance market.
  • NAR made significant progress on lease accounting issues in 2012 by holding back a rules proposal from the Federal Accounting Standards Board (FASB) and the IASB.  The proposed rules would have forced the frontloading of assets and liabilities arising from lease contreacts. Ultimately, this would hurt the bottom line of many businesses, especially in commercial real estate. NAR  built a strong coalition of  other industrial organizations and we got many members of Congress to contact FASB and IASB to ask them to reconsider their proposal.  Because of NAR’s actions the two accounting boards listened and withdrew the proposed rules.  “We plan to keep ourselves in the middle of the conversation on lease accounting rules as it takes place,” said Bill
  • Because tight lending has been hurting the CRE market. NAR has been working vigorously to regularly meet on Capitol Hill to reiterate the need to increase liquidity in the marketplace  NAR continues to beat the drum and encourage new sources of capital. One example is increased lending by credit unions. Friend to NAR,  Senator Mark Udall (CO) introduced a bill will increase the cap on credit union member business lending from 12.25% to 27.5% percent of total assets for well-capitalized credit unions. NAR will continue to urge the switft passage of this legislation.

What can NAR commercial members expect in 2013? NAR action in the following areas and more:

  • Bill said lease accounting rules could be taken up again in this year’s second quarter.
  • Congress may also vote to extend the Transaction Account Guarnatee Program for two years.  This program will help to increase liquidity available to community banks.

2012 also brought exciting new member benefits, said Bill.

  • In November,  we saw the launch of the RPR Commercial application.  “I truly believe it is a valuable benefit for our members. It gives REALTORS and only REALTORS an edge when viewing and searching properties, viewing property detail, analyzing markets and creating reports for your clients all in one place. I urge you to see it all for yourself at”
  • 2012 marked NAR’s new partnership with Xceligent “This will provide a suite of commercial real estate info services and preferred pricing exclusively for NAR members.  For the first time, REALTORS in the commercial sector will have a prowerful alternative to when it comes to how you research and market properties.
  • 2012 saw the merger of the REALTORS Federal Credit Union with Northwest Federal Credit Union. They offer vitral banking, plus access to 4600 brick-and-mortar service centers and thousands of  ATMs nationwide.  They have money to lend at extremely comepetitive rates for owner-occupied CRE.  To join online today go to


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SCOTUS Set To Hear Koontz

English: The Supreme Court of the United State...


Next month, the US Supreme Court will hear oral arguments in commercial property case Koontz vs. St. Johns River Water Management District. Koontz is an interesting and lengthy case, begun 18 years ago in 1994 when Florida landowner Coy Koontz applied for a permit to develop land he had bought years earlier in 1972.


At the time of the 17.9 acre vacant lot’s purchase, according to court filings, Koontz’s property, located at the intersection of two state highways, was unencumbered by state and local regulations, and land-use law permitted him full use of his property.  By 1994, that had changed significantly.


In 1985, Florida enacted an environmental statute implementing regulations to control the use of private property containing wetlands and uplands suitable for fish and wildlife habitat. By 1994, all but 1.4 acres of Koontz’s property was included in a Habitat Protection Zone overseen by the St. Johns River Water Management District.


Mr Koontz submitted applications for development in 1994, including mitigations for the disturbance to the habitat, as per district regulations.  He offered to place eleven acres of his property into a conservation easement.


According to court filings, the district’s response was that they would recommend to deny the permit unless Mr. Koontz, in addition to the surrender of 11 acres of his property, financed the restoration and enhancement of at least 50 acres of welands on District-owned property miles away, by replacing culverts, digging ditches and building a road.


In 1994, Mr Koontz filed an action against the District which was only heard eventually in 2002 on the question “wether the off-site mitigation required by the District was an unreasonable exercise of police power”.  The court found for the landowner, causing the District to approve the permit without the work it had required to be done on land located miles away.  Damages were also awarded to Mr. Koontz.

However, the District appealed the case, and this is where the road to the Supreme Court really begins.

In the appeal, the District did not challenge any factual findings in the lower court case, but instead attacked the applicability of cases Mr. Koontz’s attorneys had argued were applicable to the exaction the District sought from Mr. Koontz, cases named Nollan vs. California Costal Commission and Dolan vs. City of Tigard.  The technical legal argument about the specifics of takings by the state — which Koontz’s legal team hard argued applied — was now back on the table.

The Florida Appellate court found for Mr. Koontz, then the Florida Supreme court found against him.

The Supreme Court is up to hear the case and settle it once and for all on January 15th.


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