ALBANY — “Location. Location. Location,” is not the only mantra uttered by real estate investors. Investors of every ilk will turn to another oft mentioned word of advice when it comes to dealing with business.
But, commercial real estate does not operate in a vacuum — factors outside of simple supply and demand play a role in local trends as well.
As licensed associate real estate broker for RealtyUSA, it’s Jessica Richer’s job to keep abreast of those trends, and be aware as to what feeds them.
In past editions of “Spotlight on Business,” we’ve touched upon how real estate investors should prepare as they pick out a location, or once they have already selected one. In this edition, we ask Richer about events happening outside of the one-on-one meetings between realtor and investor. For example, how does the Federal Reserve System factor into the local real estate climate? And, if a commercial investor is looking to break out of the traditional business setting to take advantage of a burgeoning “shared-space” environment, what kind of homework would she suggest for her client to undertake?
Michael Hallisey, Spotlight: With the FED recently expressing its willingness to raise the Prime Rate, investors on Wall Street buckled the following day, but Real Estate analysts recognize that real estate values historically rise along with those increasing interest rates. What kind of steps can a buyer in the commercial real estate world take to lock in a favorable interest rate on a mortgage?
Jessica Richer, RealtyUSA: It depends on the type of commercial real estate one is buying and the financial strength of that acquisition. For example – if you purchase a strip mall and it has national tenants in place with long term leases and the Net Operating Income (NOI) is stable and grows over time, then there are a number of mortgage alternatives available.
If you are buying a warehouse and you are an owner occupier or you own a warehouse and need to sell it and do a lease back arrangement so you can get additional resources to fund the growth of your business, there will be attractive lending opportunities. Many of the financial institutions in the Capital District are eager to do deals and have been very aggressive in their financing proposals. There are also a number of nontraditional lenders who have become players in an effort to fill the void left by conservative banks.
When I meet with buyers or sellers, I often reach out to lenders or professionals who do financing to look at the potential funding opportunities. As soon as I list a property, I will contact specific banks to inquire if they would be interested in providing lending for the listing. The bank will look at the financials and tell me the best lending alternative they can offer. Then when a buyer comes forth we can direct them to a number of lenders who are familiar with the acquisition and ready to initiate the lending process.
It is very difficult for most people to understand the financial maze. Often a buyer will need to engage a financial expert who can help them navigate through the process. I utilize a professional resource who has 30-plus years’ experience in banking. Often I will ask him to meet with potential buyers to explain the process from personal financial statements to business plans to the varied funding alternatives. He is an expert in financing and functions as a great resource to assist my clients.
Spotlight: Albany’s Warehouse District is booming with investment opportunities — and has been for several months — on existing developments, where else can you identify similar locations in the Capital District and what advantages do investors have to going with “fixer-upper”?
Richer: There has been similar development of mixed use properties in downtown Albany, Troy, Schenectady, Malta and Saratoga Springs just to name a few examples. An investor can buy a building and if it is of historic significance apply for Historic Tax Credit funding which is very lucrative.
When an investor buys a building that has not been maintained and with deferred maintenance and low occupancy, there is a lot of “upside potential” to turn the building around. The investor can rehab the building and turn it around by filling it up to achieve 100 percent occupancy and at the same time will be able to increase rents to reflect the current market rental rate.
Spotlight: Shared spaces, like incubation hubs and start-up labs, provide unconventional workspaces between variable vocations. It, too, is a growing trend in downtown areas. What kind of homework does an investor have to do to prepare for such a unique business environment?
Richer: In this situation – it really depends on the location of the incubation hubs and start-up labs and the predicted need of future hub space. If I had a client that wanted to offer that type of space I would encourage them to research the existing locations and their occupancy rates to determine if there is a need for additions space. We have a number of office suites with shared common spaces and resources available in the Capital District. And there are a good variety of incubation hubs and start-up lab spaces as well.
Michael Hallisey is Managing Editor of Spotlight Newspapers.