In a recent survey by Lee & Associates Investment Services Group, the Los Angeles-based brokerage firm invited thousands of its clients nationwide to complete a short online survey consisting of eight key questions facing private real estate investors. The respondents included high-net-worth individuals, partnerships and other groups specializing in commercial real estate deals valued in the range of $2 million to $20 million.
Lee & Associates is one of the largest broker-owned firms in the nation with 39 office locations in 10 States and more than 600 commercial real estate brokers on staff.
Mark Larson, vice chairman of the ISG and who Specializes in Land, Investment, and Consulting Brokerage, spearheaded the survey. "Overall, the survey paints a picture of cautious optimism for commercial real estate assets but there appears to be some shifting currents," Larson said.
The psychology of the market over the last three months is changing and moving in favor of the buyers.
Buyers and Sellers are concerned over the "state of the market" and expect a rational change in the near future to fuel more transactions.
Government involvement has been slow to help in lending and job creation.
The real estate market is cyclical and we will once again rise to be the robust economic generator we have been in the past.
As institutions are on the sidelines, now is the best time EVER for private investors to buy.
Here are the key findings of the survey:
1. Buying Commercial Property: Not too surprising in this economic environment, 73% of the investors have NOT purchased a commercial property in over one year. Also surprising was that 12.5% of the investors had closed on an asset in the last four months. The remaining investor responses were pretty even as you can see in the graph.
2. Show Me the Money: The value of the investments were evenly spread out, however, the highest percentage, 32.8%, was below $5 Million Dollars. In the $5M-$10 Million Dollar range, 23.4% of the investors were putting their money here, while it was equally spread, at 21.9% each, on the $10-$20 Million Dollar and over $25 Million Dollars range.
3. Financing: Really? 62% of all the assets were purchased with LENDER financing! 26.4% were obtained on an All Cash basis. Only 7.8% of the transactions involved assumable loans while just 7% included Seller financing. The lender financing statistic was quite intriguing.
4. Safe Harbor: The Preferred Place - An overwhelming 73% of the respondents still identify commercial real estate and short term cash as their preferred place for "investment". This is a reflection in the downturn of the stock market and lack of confidence in Wall Street. Their faith signifies a belief that commercial real estate is not a bubble and that investors can continue to earn competitive returns. This finding is significant because private investors typically rely on leverage to a greater degree than institutional investors and are not as adverse to risk.
5. How Long Will This Last: 81.7% of the investors felt that the commercial real estate market has NOT started to strengthen yet. One-half of all investors believe it will be at least 18 months before the real estate market begins to gain traction and prices start to firm up again. 26.9% believe it will be between 12-18 months, while 23.2% are confident that it will turn around in less than one year.
6. Are Sellers In Tune With The Market?: As we head into the first quarter of 2010, 72% of the investors responding thought Seller's were only "slightly" more realistic in their pricing. The consensus seems to be that Seller's would like to sell on last year's pricing while buyer's believe there is still a decline. It is unclear if the bottom has occurred, as we are just seeing lending institutions getting back non performing assets (REOs). This will have an effect on pricing; however, the overall differential will vary market to market.
7. Let's Turn This Around: We asked our investors what they thought would reverse the trend and get all of us making deals again. The number 1 response was, again, more available financing, followed by better pricing. This accounted for 55% of the total responses. Next in line was job creation which increased from 22% to 29%. It appears the Feds are listening and mandating that banks get back in the business of lending and initiating programs designed to increase the number of jobs in America. It appears to be going more slowly than it should. In addition, as mentioned previously, sellers are becoming more realistic in pricing. The ultimate result should be an increase in activity in year end 2010 investment sales!
8. What Do You Like? Assuming all the factors discussed come to fruition and activity increases, we wanted to know what commercial real estate properties would be in the highest demand. The backbone of our business will always be industrial uses and was reflected in 33.8% of investors making it the #1 choice. Office and Retail continue to struggle as these product types have been overbuilt in the past ten years. As our economy rebounds, these uses will once again increase in demand.