However, things seem to have tailed off and are most likely stabalizing in many areas of the country.  While we have a long way to go before things are booming it is looking like the start of a pretty good time to get back into the commercial real estate market.

I know that investors are constantly griping that although property prices have fallen they have not in general, gone down to pennies on the dollar.  Strangely, in one of the worst economic cycles in this country’s history, prices will probably not fall a great deal farther if at all.

The Federal government has worked with banks to allow workouts that did not happen in the early 1990s.   The pressure is off the banks to foreclose everywhere they can and so the market has developed a floor that did not exist in the 90s.

Sure financing is still an issue but it can be obtained with enough down payment.  Banks are gun shy and rightfully so. Of course money is almost free to them so why take any risk if they don’t have to.

Every property on the market is not necessarily worth buying. In fact most still aren’t as owners in general have refused to sell at current market prices.  However, a well thought out investment in a commercial property with good tenants and leases that are close to market will do well in the future.

Cap rates are higher now than they have been most of this decade and while they will not go as high as they did in the 90s they are most often higher than the interest rate on the loans available.  That makes for positive leverage and an opportunity for good cash flow.

We are now actively looking for deals to buy that are not necessarily historically at rock bottom prices but deals that will make a lot of sense in the future. Because of the use of leverage and pay down of debt, commercial real estate has always been the best source of wealth over the long term. Nothing has changed.

Shift to March of 2009 and utter confusion reigns.  Everyone seems to have their own vague idea of what a good deal is and few seem to agree.  However, how can you have concensus when every day the economy seems to hit new lows.  Is it even possible for a real estate transaction to be a good deal at any cost?

Although it seems certain that we still have time to go in a declining market I feel that there are certain identifyable good deals to be had if we take the time to think about them.  Of course it depends on various criteria we set for ourselves.

Following are some examples of what I believe are good deals;

1.  An owner wants or needs to buy a property for his business or professional practice.  It is possible now, for the first time in years, to purchase a property based upon what that company would pay for in rent.  During this decade owners paid far more than they would have to pay in rent to purchase their own building or condo for their business.  Now we can once again establish a relationship so that it actually makes economic sense to buy the property. 

2.  Income property such as shopping centers can now be purchased at cap rates that are equivalent to the interest rate they are borrowing at.  The rule of thumb is that if you purchase a property at a cap rate below the interest rate your cash flow diminishes. The converse is also true.  Therefore anytime you can get the cap rate at least the same as the interest rate on the loan you will do well.

3.  Property values are starting to decline towards building costs.  For years we have been paying far above building replacement costs for properties. This is always on the adventurous side of investing.  The closer to replacement costs the safer the deal is and the lower the rent you can charge to stay full.

4.  It is becoming more and more possible to increase your leverage today on apartment buildings and still have a cash flow on your invested dollars.  That is because mortgage rates are lowering on apartments and the loan payment to income ratios are starting to fall in line once again allowing 75% loan to value loans to be made once again.  This is good leverage but not silly risky leverage.

So once again I will say that there are good deal to be had today.  They are not overly plentiful yet but the camels nose has appeared under the tent, as the saying goes.  In the coming months more and more deals will be coming up.  The question is; will be ready for them?