I’m not sure how I missed this, but miss it I did. NAR’s June 2014 Commercial Regulatory Report is available for free download, containing updates and summaries of recent NAR actions in the regulatory space, including FAA, EPA, SEC, GSA and SBA. If any property in your portfolio involves air, ground or finance (find me one that doesn’t!) you need to check out the report.
The Real Estate Advantage (REAL 504) loan program is a key platform in the federal government’s business development role. Administered through the Small Business Administration (SBA), the REAL (504) loan is for small business to acquire real estate and equipment. While it’s not the only loan program the SBA offers — the full range of loan and grant programs can be seen here — the REAL (504) loan is a welcome topic at the real estate deal table when it’s time for a business to expand operations and acquire a larger footprint.
Joe and Donna Ruzich didn’t celebrate alone at a reception Monday marking the opening of their Synergy Physical Therapy and Wellness center, a dream of Joe’s since he graduated college 15 years ago.
The guest list included several top advocates for Small Business Administration lending programs, including Beth Solomon, president of the National Association of Development Companies, which represents SBA districts and lenders across the nation.
As part of the event, Solomon, visiting Colorado from Washington, D.C., led a roundtable discussion at Synergy, 1080 Eagleridge Blvd., Unit G. The Ruziches qualified for a smaller down payment on a purchase-and-remodeling loan as part of the Real Estate Advantage (504) Loan program.
Calling the new center a “REAL (504) success story,” Solomon urged small businesses across Southern Colorado to look into the program and other government-sponsored initiatives such as Small Business Development Centers.
“We’re here to get these loans into the community,” she said.
This Veterans Day, let’s remember that servicepeople in the commercial real estate industry have a few extra benefits when it comes to obtaining capital and credit. In a tight market for capital, that can make all the difference at the deal table — especially for owner-occupiers.
The Small Business Administration (SBA) 504 program offers US military veterans and service disabled veterans commercial financing for purchase of real estate that will house your business, expand, retrofit, renovate or remodel an existing facility. Funds are also applicable for refinance of an existing commercial loan as part of a business expansion.
Some terms of eligibility: A veteran-owned business is a business where at least 51% is owned by one or more veterans.
Not Limited To 504
You can browse the length and breadth of business advantages offered to veterans at the multi-departmental government business.usa.gov. Under its Resources For Veterans page, you can find a long list of benefits including business outreach, assistance in working with federal agencies, and the Center For Veterans Enterprise.
The list doesn’t stop there. CVE and other sites provide a wealth of information for vets in business and commercial real estate: an enduring government thank-you for those who answered the call to service.
Owner-occupied refinance options could get a lot more forgiving, if the votes go the right way on the Hill. In a letter from NAR President Gary Thomas to Senators Mary Landrieu (D-LA) and James Risch (R-ID), NAR support for a key commercial real estate bill is spelled out. The issue addressed by the bill, S.289 “Commercial Real Estate and Economic Development Act of 2013”, is the impending maturity of $1.3 trillion in balloon mortgages. Between 2013 and 2016, a wave of maturities is headed to holders of these instruments and market options for refinance being what they are, there’s a real risk of higher loan defaults, delinquencies and business failures. The bill doesn’t create a new program for such mortgageholders. Instead, it temporarily allows commercial real estate projects to be eligible for the already-existing SBA refinance program called 504/CDC. NAR President Gary Thomas continues:
Nearly $1.3 trillion of commercial real estate loans with balloon mortgages will mature between 2013 and 2016, with very limited options for small businesses and other commercial property owners to refinance. If not addressed, the swelling wave of maturities could result in higher loan defaults, delinquencies, and business failure – further endangering economic recovery.
An expansion of project types eligible for the SBA 504/CDC refinance program will alleviate some of that pressure by allowing small businesses to refinance certain owner-occupied commercial buildings. This helps ensure that small businesses successfully persevering through tough times will not suddenly fail for the lack of capital. Also, extending the 504/CDC refinance program’s eligibility to include commercial real estate properties for five yearswill provide more time for private capital to return to the market and help prevent commercial financing from becoming yet another drag on economic recovery.
NAR strongly encourages the timely passage of S. 289, a critical component to our nation’s economic recovery. REALTORS® thank you for your diligent work to bring confidence and strength back to our finance system.
Today’s wariness of banks and private lenders to finance commercial real estate transactions is widely reported as this industry’s leading challenge as it comes out of the recession. There are many reasons given why bank lending volume isn’t where it should be, but at the core, credit availability depends on lenders being good at assessing risk. It’s not as if the country’s largest banks have earned the most sterling reputations when it comes to evaluating, securitizing and financing real estate risk — the recession itself speaks here.
No matter how the times got tough, it is absolutely critical to maintain the flow of credit during and following an economic downturn. That’s one role of the Small Business Administration’s SBA 504 program: to provide access to capital and to shoulder risk when our pinstriped friends find themselves otherwise concerned with problems of their own making.
Since 1959, the SBA 504 program has been offering a form of government support to small business and to banks simultaneously by reducing the risk assumed by the bank. The result is credit available to the small business during those times when it is needed most.
The amount of small business loans under the SBA 504 has risen 16% per year in the three years following 2009, adding up to $4.5 billion. “Small business” is for the most part defined as businesses having fewer than 500 employees and less than $5 million in income. Business owners are required to put up a down payment of just 10 percent, compared with the 25 percent to 40 percent demanded in a commercial property loan.
Commercial real estate practitioners should know that the SBA option exists simply as part of diligence on behalf of clientele; and in financially trying times, it might even make the difference between deal or no deal.
Occupancy Requirements Mean One Size Does Not Fit All
The terms of these SBA 504 loans protect against default by providing approval requirements that owners are the primary occupier of their space. Owners that occupy are more likely to pay back the loans, as opposed to investment properties where if a tenant leaves, the hunt for a new tenant creates pressure that elevates default to just another strategy available to the owner.
Further, the 504 program loans are made available through Certified Development Companies (CDCs), SBA’s community based partners for providing 504 Loans.
These requirements constitute a focus on long-term occupancy and community — promoting greater community stability. The program highlights the difference between sustainable economic development and the kind of slash-and-burn approach to commercial real estate (and much else) that ended up being such poison to commercial property’s market for credit.