Some industries have been showing smaller losses and some factory orders have increased.  In fact home sales are actually up from last year in many areas of the country.  So are things about to break wide open?  As kids might say, ” Are We There Yet”?  Is it time to break out the check book and take advantage of the market?

In my opinion, investing in commercial real estate is premature on a wholesale basis but can be selectively carried out.  Jumping into the market whole heartedly must wait until it has actually started to go up.  However, we are starting to see well thought out offers on properties, that would have once been quickly dismissed, now being accepted.

Well thought out offers does not mean to shoot from the hip and just discount every price by 50%.  Rather it means that one must pay attention to cost per square foot, cap rate, current and reasonably projected vacancies and current and reasonably projected attainable future rents. That is the case even with REO properties. The hold period should be projected to be at least 5 years which necessitates the real estate to be well located and well situated in its marketplace.

We often have to make multiple offers for clients seeking to buy smartly in this economic environment.  However, if there is a sound rationale behind the offer the seller will usually at least think about it.  I believe that in the case of motivated sellers, the offer will be kept and revisited after a period of time has passed.  That is true even by bank REO managers.

Therefore if I had small kids in the back seat of my car asking “Are We There Yet?” I would have to respond “perhaps”.

People are talking about the slow down of sales not only in residential housing, but in commercial real estate in general.  What you don’t hear much about is the demand that is becoming pent up by buyers hoping to invest in commercial real estate.

When dealing in homes we all know there is a dearth of buyers because home prices are still declining.  Why buy a home that will almost assuredly be worth less in a year from now than it is today?  Good question with no especially great answer forthcoming.

Dealing in commercial properties is really a different matter even though it is being shoved into the same basket as housing.  People are really afraid to go into the stock market.  Every day there is more bad news regarding stocks and the economy.  Every day another captain of industry bites the dust albeit with a  severance package most would kill for.  The investor has very good reason to fear where the market is going in the next 12 months or more.

Commercial real estate does not have those great drops in value or battered returns.  True, some office buildings are getting smacked with vacancy rates that have risen significantly in the past year. However, even in those cases most have such a cushion built in them that we have not seen even this catagory of commercial property going into foreclosure.

Then why the slow down?  It’s simple.  Property owners have been doing so well with their properties in the past 5 or 6 years that they aren’t pushed to sell.  However, if they really wish to they can sell easily by simply allowing the buyer to achieve a modest return.  This isn’t really a very painful or costly move for most sellers. 

The fact is that by pretending this is still 2004 or 2005 they are missing an extraordinary chance to take some significant profits.  They are betting the farm that the market will go back to rapid run ups in value in a year.  In my view that is very unlikely to happen at least for a few years.  Investor psyches have been severely impacted by what has been going on in the economy in general.   They have learned a very hard lesson, once again, that they simply cannot get sloppy or emotional when investing their money. 

The encouraging news is that more sellers are starting to realize that even though their property is not worth the pie in the sky number they have attached to it, it is still worth a hansome price.  If this idea continues to take hold we will once again be back in a market that is more than fair to the seller and gives the buyer a reason to invest in real estate.  Hang on because I think we are getting there.