2B — January 17 - 30, 2020 — New Jersey — M id A tlantic
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OCHELLE PARK, NJ — Today’s record l ow interes t rates R Finding the right balance of opportunity & caution Industry veterans share view on CRE investment market this rapidly changing environ- ment, it’s important for inves- tors to maintain a disciplined strategy. Q. What advice would you offer CRE investors?
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When it comes to real es- tate collateral that generates income, a loan applicant will likely need to provide documen- tation of leases and rent rolls, as well as agreements with con- tractors. In addition, a lender will expect to see evidence that the real estate collateral has the required environmental clearances. Overall, lenders don’t want to be surprised about any ease- ments or encroachments, evi- dence of use by other parties, and whether the property is accessible by existing roads, so arranging for a survey is another proactive step. Lenders also want to know about any zoning or other approvals that are needed to conform to the planned use of the property. Other items on the “checklist” include creating a well-crafted business plan and exit strategy. Q. In what sectors are you seeing opportunities as we head to the New Year? A. Herrick: Based on Case’s research, retailer-occupied real estate may offer opportunity, at least among the tenant- retailers that have been able to survive the online onslaught. Within this class, lenders may be able to structure a business loan secured by the underlying real estate, or a real estate loan that’s secured by the business’ assets. The hybrid nature of the collateral may minimize any downside. Also, office continues to show strength. Cushman & Wake- field’s “Marketbeat U.S. Office – Q3 2019” reported that leas- ing demand remained healthy in Q3, with volume totaling 79.7 million s/f, though down from the 98 million s/f leased continued on page 12B
would nor - mally act as a magnet for commercial real estate (CRE) inves- tors — but uncertainty in the sector, mirroring the q u e s t i o n s a b o u t t h e direction of the general economy — is scaring off some. Who is right? Some investors see the Federal R e s e r v e ’ s recent rate c u t s , t h e t h i r d i n a row, as a sig- nal that the economy may be edging to- ward a re- cession. But
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A. Aysha Cox, VP: I’d like to build on Sandy’s obser- vations about maintaining discipline in an evolving mar- ket. The South Florida com- mercial real estate landscape — which has seen robust activity in industrial, multi- family, and technology/e- commerce — illustrates this concept. The growth across these segments is driving more demand for assets like housing, land, warehouse and office buildings, but busi- nesses and developers should be cautious as they search for reliable financing sources. While banks may offer lower interest rates compared to private lenders, the tradi- tional-lender loan approval process can be lengthy and subject to multiple restric- tions. In any type of environment, exercising reasonable caution is well advised in every step of the process, including choos- ing experienced brokers and other advisors. If an investor is considering existing properties, requesting income and expense statements for the current and previous years is a good idea. In addition, potential investors can review rent rolls, service contracts and other reports. Another tip for investors is to maintain an adequate cushion of cash reserves as unexpected events may occur, particularly at larger properties. For ex- ample, the property may not always be at an attractive occupancy level, and/or some tenants may fall short on their rental payments. Q. Chris, you’ve previous- ly talked about a borrower’s “checklist” to avoid delay- ing a project and/or losing money. Could you give us details about that? A. Chris Mavros, manag- ing director, principal and CFO: To increase the likelihood of success when applying for a loan, a borrower needs to mind the details and take certain proactive steps. At the outset, those include determining the purpose of the loan and its urgency – the why and when – and understanding his or her creditworthiness, which encom- passes issues like the collateral that will be offered.
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others, who focus on healthy consumer spending and a low unemployment rate, see this as a buying opportunity. To provide guidance, in- dustry veterans at Case Real Estate Capital, LLC recently gathered to share their per- spectives. Based in northern NJ, the commercial real estate investment company is active as a market-leading, high-yield private lender; a financier of transitional properties; a pur- chaser of performing, sub- and non-performing debt; and a mezzanine and equity investor. Q. What are some of the top issues in the CRE invest- ment market right now? A. SanfordHerrick, found- er and managing principal: Finding the ideal balance of caution and opportunity can be challenging. That’s particularly true today, where a bank ac- count — traditionally seen as a “safe haven” for cash — typi- cally offers annual returns of only tenths of a percent. That’s helping to drive up investor de- mand for real estate, although some asset classes continue to perform better than others. Also, there’s no doubt that a lot of capital is sitting on the sidelines. The concern is that some inexperienced investors may jump the gun when they find what appears to be a good deal and could overpay. In
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