A Summary of Current Market Trends or Reasons to Buy Now

From Tom Vincent, CCIM - Chicago, IL | We listened to Bob White of Real Capital Analytics discuss the current CRE market and trends. The good news is that the market is starting to slowly come back. Highlights include:

* Prices are starting to rise in the primary markets, driving down cap rates as there is more competition
* Secondary and tertiary markets are about 6 months behind this trend
* Many investors are sitting on the sidelines waiting to invest
* Debt financing has begun to return for good properties though underwriting guidelines have changed mostly with financial institutions requiring more equity – down payments of 35-40% are common
* Pricing may not increase linearly (in an increasing, straight line, but with “bumps in the road”)
* Properties that are trading are income-producing with current cash flows
* The market is two-tiered; value-added properties are lagging behind with biggest loss of value
* Single tenant cash flowing properties are showing biggest gains

Buyers have waited for the large influx of distressed properties to come to market. During the savings and loan crisis, financial institutions wanted the bad loans off their books and were selling at distressed prices of about 20-30 cents on the dollar. This is not happening now and likely will not!

* Banks are using the “extend and pretend” option
* FDIC has enough failed and failing financial institutions to contend with and are not anxious to add more
* Banks will sell distressed real estate at lower discounts in the 60-75 cent range

For the private investor, cash-flowing properties are selling in the $500,000 – $2,500,000 range. Financing is starting to be easier to find though lenders are imposing more stringent underwriting guidelines. BUT if you have extra cash earning 1% or less in a money market, now may be the time to leverage that money at the least 60% to buy an income-producing property. As an accountant, I also can’t resist adding this: Tax increases are coming, Bush’s tax cuts expire this year and Obama’s spending spree will add new taxes. Owning property can shield some income from taxation (depreciation, etc.). Now may be a good time to buy and of course, we are ready to assist you in finding the right property for you!! For further information on acquisitions, please read Tom’s White Paper HERE.

Question or comments about these trends and how your portfolio is positioned? Call us at (847) 963-1031 or email us!