THE BIG PICTURE
THE BIG PICTURE
LENDING
COMMERCIAL REAL ESTATE TRANSFORMATION
Commercial Investors vs. ZombieMalls REAL ESTATE INVESTORS WIN IN UNCOMFORTABLE SCENARIOS.
by Linda Liberatore
I
n the mid-1990s, malls were being constructed at a rate of 140 new shopping centers per year. In 2001, however,
Private Lending and Personal Guarantees WHAT IT MEANS FOR YOU WHEN A PRIVATE LENDER PERSONALLY GUARANTEES A LOAN.
SPOTTING INDICATORS OF CHANGE
disturbing trends began to emerge. A PricewaterhouseCoopers study found that
underperforming and vacant malls were becoming increasingly common. In 2007, for the first time in 50 years, there was not one new mall built across the United States. With the Great Recession in 2008, malls nationwide transitioned to a permanent new path thanks, in large part, to the creativity and flexibility of the country’s commercial real estate investors. Since 2008, we have seen consumer preferences shifting from the confined ambiance of the mall to a more engaging, outdoor “lifestyle center.” This has included the slow sunset of
might have because consumers now shop anytime and anywhere with a click of the mouse or a tap of the screen. Proximity to retail shopping can still make properties more attractive to potential occupants, but look for “experiential” retail rather than focusing solely on the presence of certain brick-and-mortar stores. Residential investors should be aware of how the retail experience in their local market is changing and how it may affect property values. If a “zombie mall” is scheduled for renovation into a more contemporary lifestyle center, that could be a good sign that property values in the area might be set to appreciate in the near Many times, “zombie malls” are a central location for criminal activity. If you have insight about an area that is about to have such a situation improved – possibly by converting an outdated mega-mall into one of those life- style centers we mentioned earlier – you can leverage that information and build a portfolio in the path of progress. Watch for indicators of change that may herald pend- ing improvements in a zombie mall’s situation. These indicators include: • TRANSPORTATION UPGRADES • AFFORDABLE HOUSING INITIATIVES • COMMUNITY EFFORTS TO IMPROVE THE DESIRABILITY OF AN AREA OR PROACTIVELY PREVENT CRIME.
by Carole VanSickle Ellis
P
hysical property is one of the soundest forms of loan collateral in existence, so it’s no wonder that lending entities of all types, from mega-banks like Wells Fargo to private, individual lenders, like real estate so much. As our sitting president has famously said for decades, “Real estate is always good as far as I’m concerned.” Property has inherent value and “is never worth zero.” As a result, a note created with real estate as the collateral is often a very attractive loan indeed. However, since the housing crash many private lenders have added a new component to the allure of real estate as collateral on a private mortgage note or private hard-money loan in order to induce more investors to loan private money. That benefit? A personal guarantee that the loan will perform. Properly applied, a personal guarantee from a private-money
lender that your investment funds, when loaned through them, will be repaid on time and at the terms you agreed to regardless of whether or not the flipper or rehabber who borrowed the money remains involved to the end, is a true advantage the party lending the money and to that borrower as well.
the traditional big mall anchored by the big box store and the emergence of partnerships like those between Starbucks and Target, Drybar and Ulta, and Sephora’s presence within JC Penney stores. To prevent the spread of these “zombie malls” and preserve
ZOMBIE DEFENSE TIP: Get involved! Meet the neighbors and make a difference by building relationships in the community where you invest. Investing in yourself and your property always pays the highest returns.
HOWA PERSONAL GUARANTEE ON PRIVATE MONEYWORKS
Personal guarantees can be placed at multiple points in a hard- money loan, and they are often confused with full-recourse terms. Everyone on both the borrowing and the lending sides must fully understand where and when the personal guarantee comes into play and what the terms entail.
active property tax rolls, business owners and local governments are brainstorming creative solutions. Spotting areas where these solutions are going into effect can help you identify areas that may soon be attractive to buyers and tenants.
PRIVATE LENDING: IN A NUTSHELL
2
1
3 Passes to the borrower, an active investor
It starts with the investor with the money to make the loan.
Flows through the hard-money lender (who may be raising capital for multiple loans).
WHY RETAIL MATTERS TO RESIDENTIAL INVESTORS
who uses the money to fund real estate deals or other investments.
> Continued on :: PG 112
Whether you own a small strip mall or not, your properties will be affected by the changing face of traditional retail space. 2016 saw the closing of large retail stores like Sports Authority, Kmart, Sears, and even some Wal-Mart and Ralph Lauren stores. These closings did not have the impact on their communities that they once
Linda Liberatore is the founder and president of My Landlord Helper— Secure Pay One, a unique virtual assistant solution for DIY real estate investors. She is also a Chicago-area landlord and the author of the book “Daily Inspirations to Achieve Your Real Estate Investment Goals.” Contact her at lindal@securepayone.com.
90 | think realty magazine :: october 2017
thinkrealty . com | 91
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