A Look Ahead: Opportunities in Commercial Real Estate Investment

Success in real estate requires the ability to identify opportunity and risk.  In commercial Real Estate investment for commercial and industrial properties, being able to look ahead is essential.

Commercial RE loans are traditionally originated in 5 and 7 year maturity, if the bank will re-finance the loan, this isn’t a problem.  The new banking requirements for these types of loans has changed significantly recently.  These changes have altered the landscape of commercial real estate loans in general and especially those that used CMBS to finance commercial real estate projects.

In 2007 – 2008, the height of the RE “bubble”, CMBS (Commercial Mortgage Backed Securities) was a $230 Billion Dollar business.  By 2009 this figure dropped to $39 Million. Owners, developers and investors relied on this securities market for financing during the last decade.

In a CMBS transaction, many single mortgage loans of varying size, property type and location are pooled and transferred to a trust.  Notes originated under these trances are now coming due.  So how does that affect buying, developing and selling commercial Real Estate?

Rents and occupancies are still weak in many markets and the availability of financing can make or break a deal.  Of the $1.4 Trillion of commercial real estate debt coming due by the end of 2014, roughly 52% is backed by properties that are underwater, according to Trepp LLC, a research firm that tracks the commercial property market.