The conditions for executing smaller commercial real estate deals appear to be getting better but there is one new emerging factor that many investors are overlooking…
Commercial and especially multifamily apartment acquisitions can be a great step up for residential investors and a smart way to diversify for affluent individuals looking to diversify portfolios. However, smaller commercial real estate deals have typically been tougher to do, creating a hurdle to entry.
In particular this barrier comes into play when financing is involved. Most bigger players and commercial lenders traditionally prefer larger deals, and make deals over $10 million easier to get done, with some using this as their minimum loan size.
The commercial mortgage backed securities market boomed last year with a 48% increase in new issuances. Bankers and analysts have predicted another 40-50% rise this year thanks to increased appetite and access to funding. Most notable is the response to the NAR 2013 Commercial Real Estate Lending Survey which shows members reporting the most increases in deals in the $2 million and under category, including multifamily properties.
Not only have the usual line up of commercial mortgage lenders and the SBA stepped up in this arena but the emergence of crowdfunding and a surge in bridge and short term financing sources pooling private money is making it a lot easier for individual investors to get in with attractive terms.
There is now a plethora of finance companies for those looking to buy and turn over these types of deals (with low rates for the buy and hold investor), but several firms serving up creative solutions for creative deal structuring like Vortex and those that will provide the upfront money to secure contracts while additional capital is being raised like Wall Street based Apollo Financial Group.
However, individual investors engaging in direct investment in multifamily are also facing a new challenge, one few are aware of.
Rents are up, vacancies down, and property prices up. But consumers (tenants) are getting smarter and are frequently being pushed to do as much due diligence on prospective landlords and property managers as they are being screened themselves.
This is the last thing that most individual investors want. If privacy in general wasn’t under enough threat already, they don’t want their credit and backgrounds being dug up, or assets and financial situation being disclosed to the world. Then if the lease arrangement goes south that’s going to be all over the news, social networks, and up on the web forever.
Of course the most obvious route around this is to get a professional property management company to be the go between. With all of the other benefits and boost to the bottom line that the best full service property management companies can provide it only makes even more sense to recruit one today.
So make sure you factor this in, do your research and select a property manager before you make your next acquisition so that they can be there for a smooth transition. Plus they might even have some leads on great multifamily or other commercial real estate deals for you too, just ask…