Tenants Poised to Benefit from Downturn

From a leasing perspective, the economic downturn has affected many industries as they strive to survive turbulent times. A decrease in new home construction has created a low need for building materials; as a result, the Lease demand for industrial space, from construction related tenants, has decreased while the existing Tenants are asking for rent relief and space reduction.

Some encouraging news for Tenants, able to maintain their operations, is that smaller, newer companies will not be able to keep their business operating; when the market returns, the survivors will be poised to receive more business opportunities.

The owner / occupant side of our industry remains uncertain. Financing is available today; however, the qualifications are far more stringent and the terms are more conservative than just 90 days ago. Companies must be actively lucrative, as well as, able to demonstrate future profitability. While many lenders are out of the market, certain banks and life insurance companies are still lending. Loan terms depend on the size and strength of the company, the outlook for the business and the functionality of the real estate. Special purpose buildings are far less desirable in today’s market. Recourse will typically be required of the company and / or the principals. Non-recourse deals are only available to the strongest companies with lower leverage (50 to 60 percent loan to value or less).

Investment Properties are an interesting challenge, as well; Lenders still want to finance investment real estate on stabilized multi-Tenant buildings. For single Tenant properties, the terms are much the same as they are for owner occupied deals. For stabilized multi-Tenant properties, non-recourse loans are still readily available through the life companies for loans of 65 – 70 percent loan value, with amortization of 25 years.

The current market conditions will not continue for the long term. Once the credit markets stabilize and credit becomes available to businesses and investors, we will start to see a return to normalcy. Accessible credit will stimulate consumer spending, which includes the ability to purchase housing or commercial investments. This spending is what drives the economy and in return equates to capital growth for businesses.