florida realtors ® commercial real estate lending study
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Florida REALTORS ® Commercial Real Estate Lending Study. Market Enhancement Group, Inc. July 2012. Survey Objectives. To assess the commercial real estate lending market in Florida with a special emphasis on: Full-time employed commercial real estate professionals - PowerPoint PPT PresentationTRANSCRIPT
Florida REALTORS®
Commercial Real Estate Lending Study
Market Enhancement Group, Inc.July 2012
2
Survey Objectives• To assess the commercial real estate lending market in Florida with a special
emphasis on:
• Full-time employed commercial real estate professionals
• The impact of credit availability
• The effect of commercial real estate appraisals
• Challenges confronting commercial real estate professionals
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
3
Methodology• Telephone interview methodology.
• The interviewing achieved a completion rate of 79.1% of all commercial real estate professionals who were contacted.
• Respondents were “not” limited to those who belong to the Florida REALTORS®.
• 300 surveys completed in May and June 2012.
• Results are statistically projectable at two standard deviations (a 95% confidence level). Overall data is subject to a maximum sampling error of +/- 5.8%.
• Survey respondents were selected on a random probability basis from a list provided by MEG.
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
4
Methodology• An important consideration is that we are measuring perceptions.
• Perceptions are never wrong; they can, however, be factually incorrect.
• When respondents make decisions, perceptions are more important than the facts.
• Most interviews were done on cellular telephones. The cellular telephone is the commercial real estate professional’s main telephone.
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
5
Survey Respondents• Survey respondents were divided equally between full-time commercial real
estate professionals as follows:
• Commercial real estate brokers 50%
• Commercial real estate non-brokers 50%
• Survey respondents by area of specialty were:
• Sales58%
• Leasing29%
• Management13%
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
6
Survey Respondents
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
50%50%
Commercial real estate brokersCommercial real estate non- brokers
7
Survey Respondents: Area of Specialty
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
58%29%
13%
SalesLeasingManagement
8
Area of Specialty
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Commercial real estate brokers
Commercial real estate non-brokers
Male FemaleNewer commercial real
estate (3 yrs or less)Seasoned commercial
real estate (>3 yrs)
Sales 55% 61% 64% 47% 61% 56%
Leasing 20% 38% 25% 35% 25% 31%
Management 25% 1% 11% 18% 14% 13%
9
Key Conclusions
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
10
Key Conclusions• 77% of survey respondents have completed one or more sales transactions
in 2012, this figure was higher for non-brokers than for brokers.
• Those completing one or more sales transactions in 2012 was higher for those in sales and leasing as opposed to those in management.
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
11
Key Conclusions• When asked about major obstacles for commercial real estate this year, the
average respondent mentioned 3.9 different obstacles on an “unaided” basis.
• The obstacles for commercial real estate mentioned most often were:
• Lack of available financing 78%
• Low, inconsistent appraisals 66%
• Economic Conditions 58%
• Inventory41%
• Inconsistent financing standards 37%
• Declining prices 36%
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
12
Key Conclusions• 86% of commercial real estate professionals have failed to complete one or
more transactions in the past one year due to a lack of financing.
• The most frequently mentioned reasons for having failed to complete one or more transactions in the past one year due to a lack of financing were:
• Lender backed out 69%
• Low appraisal 56%
• Declining prices 38%
• Very stringent lending standards 15%
• Internal underwriting standards 15%
• 84% of commercial real estate professionals report that a lack of financing has impacted their clients’ decisions about commercial real estate.
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
13
Key Conclusions• Two-thirds of commercial real estate professionals report that lending conditions have tightened
significantly over the past year.
• The groups that currently provide financing for commercial real estate deals are most likely to be:
• National Banks 51%
• Community/Local Banks 48%
• Regional Banks 47%
• Private Investors 42%
• REIT’s 30%
• Mortgage Brokers/Co’s 24%
• Credit Unions 22%
• Life Insurance Companies 21%
• Owner Financing 19%
• Fannie/Freddie 14%
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
14
Key Conclusions• When asked about the amount of their last transaction,14% of survey
respondents reported that it was a cash transaction.
• Most transactions that were financed were in the $750K to $4.9M range.
• Average loan-to-value ratios for commercial deals over the past year were concentrated in the 70% to 75% range.
• Only a third of any commercial real estate transactions were supported by a SBA loan.
• When survey respondents were asked about their experience with property appraisals over the past year, most had nothing positive to report and most cases cited they were low, inconsistent, and often out of touch with economic conditions.
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
15
Detailed Findings
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16
Have Completed a Sale/Transaction This Year
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Commercial real estate non-brokers
Commerciareal estate brokers
Total
86%
68%
77%
17
Have Completed a Sale/Transaction This Year
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Management
Leasing
Sales
Total
53%
83%
80%
77%
18
Major Obstacles for Commercial Real Estate This Year
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Loan processing time takes longer than promised
Cost of credit
Having to rely on multiple lenders
Vacancy rates
Declining prices
Inconsistent financing standards
Inventory
Economic Conditions
Low, inconsistent appraisals
Lack of available financing
16%
18%
20%
20%
36%
37%
41%
58%
66%
78%
Multiple, unaided responses. Percentages will not total to 100%.
19
Major Obstacles for Commercial Real Estate This Year
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Total Commercial real estate brokers
Commercial real estate non- brokers
Sales Leasing Management
Lack of available financing 78% 80% 75% 76% 77% 85%
Low, inconsistent appraisals 66% 75% 58% 70% 61% 63%
Economic Conditions 58% 45% 70% 57% 59% 60%
Inventory 41% 51% 30% 34% 52% 48%
Inconsistent financing standards 37% 31% 44% 49% 31% 0%
Declining prices 36% 32% 41% 40% 36% 20%
Having to rely on multiple lenders 20% 11% 29% 23% 18% 10%
Vacancy rates 20% 23% 17% 19% 16% 33%
Cost of credit 18% 23% 14% 10% 37% 15%
Loan processing time takes longer than promised
16% 15% 17% 16% 13% 20%
Area of Specialty
20
Have Failed to Complete a Transaction This Year Due to Lack of Financing
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
86%
14%
YesNo
21
Have Failed to Complete a Transaction This Year Due to Lack of Financing
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Management
Leasing
Sales
Commercial estate non-brokers
Commercial real estate brokers
Total
88%
86%
86%
87%
86%
86%
22
Why You Failed to Complete a Transaction This Year Due to Lack of Financing
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Inconsistent financing standards
Very stringent lending standards
Internal underwriting standards
Declining prices
Low appraisal
Lender backed out
5%
15%
15%
38%
56%
69%
Multiple, unaided responses. Percentages will not total to 100%.
23
Has Lack of Financing Impacted Your Clients’ Decisions Related to Commercial Real Estate?
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Yes No
84%
16%
24
Has Lack of Financing Impacted Your Clients’ Decisions Related to Commercial Real Estate?
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Management
Leasing
Sales
Commercial real estate non-brokers
Commercial real estate brokers
Total
100%
91%
77%
85%
83%
84%
25
How Have Lending Conditions Changed Over This Year
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Eased Significantly
Eased Somewhat
Not Changed
Tightened Somewhat
Tightened Significantly
0%
4%
15%
20%
61%
0%
7%
5%
18%
70%
0%
5%
10%
19%
66%
Total Commercial real estate brokersCommercial real estate non-brokers
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Which Groups Currently Provide Financing for Commercial Deals
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
National Banks 51% Credit Unions 22%
Community/Local Banks 48% Life Insurance Companies 21%
Regional Banks 47% Owner Financing 19%
Private Investors 42% Fannie/Freddie 14%
REIT's 30% Public Cos. 7%
Mortgage Brokers/Co’s 24% Cross border investors 2%
Mean number mentioned = 3.28
27
Based on your last sales transaction, what was the amount of the loan? (Distribution of Loan categories)
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Cash <$50K $50K-$99K
$100K-$249K
$500K-$749K
$750K-$999K
$1M-$1.9M
$2M-$4.9M
$5M-$9.9M
$10M or more
14%
3% 3%
5%
9%
19%
11%
22%
11%
3%
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Based on your last sales transaction, what was the amount of the loan? (Distribution of Loan categories)
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Cash 14%
<$50K 3%
$50K-$99K 3%
$100K-$249K 5%
$500K-$749K 9%
$750K-$999K 19%
$1M-$1.9M 11%
$2M-$4.9M 22%
$5M-$9.9M 11%
$10M or more 3%
29
Average Loan-To-Value (LTV) Ratios for Commercial Deals over the Past Year
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
90% 85% 80% 75% 70% 65% 60% 55% 50%
10%
8%
10%
23%22%
10%
8%
6%
3%
30
Have Been Involved With Any Commercial Transaction Supported by a Small Business Administration (SBA) Loan
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
33%
67%YesNo
31
Your Experience over the Past Year with Commercial Property Appraisals
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Hearing nothing but complaints about property appraisals 43%
Appraisals are coming in all across the board, no consistency 45%
Appraisals have been too low. 42%
All have been very low values 39%
Appraisers are too conservative 39%
Not in touch with the real market conditions 37%
Appraisals have been tough on commercial properties because of their declining sales volume 35%
Seem to be more regulated than before 33%
Multiple, unaided responses. Percentages will not total to 100%.
32
Your Experience over the Past Year withCommercial Property Appraisals
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Appraisers do not have current sales data to conduct accurate appraisals
23%
Appraisals for bank owned property are lower than reality
22%
Banks are instructing appraisers to keep appraisals low
21%
Down from three years ago 20%
IF you get a bank willing to loan, that the appraisal will be your most significant hurdle
20%
Too much red tape 17%
Difficult task due to lack of current market data that reflects current economic conditions.
15%
They are normally below market, just to be safe 13%
Appraisers are overly conservative because they are receiving pressure from lending institutions
10%
33
Suggestions for Practitioners Looking for Commercial Loans
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Investor loans are very tight 38%
Banks are a dead end for the most part 34%
Banks are not making any decisions 20%
At present it will take more equity in the property to get a loan 22%
Credit Unions are the most aggressive for smaller loans 24%
Prepare to bring more equity to the table and plan on more stringent reserve requirements 20%
Go to the bank that you have a history with 20%
Multiple, unaided responses. Percentages will not total to 100%.
34
Suggestions for Practitioners Looking for Commercial Loans
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Develop a relationship with lenders who specialize in your product type. 15%
Don't give up. Some lenders just need a little more time. 11%
SBA is one of the worst places for loans 8%
Definitely have a business plan ready and your financials as tight as you can 8%
Don't give up, if you are well qualified you can get the money 7%
Private investors are the best 6%
Call all banks possible 5%
Multiple, unaided responses. Percentages will not total to 100%.
35
Demographics and Experience
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
36
Demographics and Experience• The typical commercial real estate professional has a decade of experience
in the business. Only 28% have three or fewer years of experience.
• Most commercial real estate professionals are male (62%).
• The average commercial real estate professional is 45 years of age and 87% have a BS/BA degree or higher.
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
37
Commercial Real Estate Experience
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72%
28%
Seasoned seasoned commercial real estate (>3 yrs)Newer commercial real estate (3 yrs or less)
38
Commercial Real Estate Experience
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Mean Number of Years
Comercial real estate, non-brokers
Commercial real estate brokers
All respondents
10.21
10.06
10.14
39
Survey Respondents: Gender
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
62%
38%
MaleFemale
40
Survey Respondents: Age Category
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Under 25 years 25 to 34 years 35 to 44 years 45 to 54 years 55 to 64 65 or older
1%
31%
21%
18%19%
11%
41
Survey Respondents: Generation
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Senior
Boomer
Gen X
Gen Y
7%
33%
28%
32%
42
Survey Respondents: Education
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JD/LLM/PhD
Some graduate school (no degree)
Master's degree
BA/BS degree
AA degree (2 years)
Some college (no degree)
High school diploma
Some high school (no diploma)
0%
0%
27%
61%
11%
0%
2%
0%
43
Survey Respondents: Ethnic Background
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327
Chinese
Other Asian
African American, Black
Hispanic, Latin American
White/Non-Hispanic
5%
6%
9%
25%
56%
44
Definitions• The survey breaks some questions down by “generations.”
• The generations are defined as follows:
• Gen Y: born 1980 to 1999 (age 32 and younger)
• Gen X: born 1965 to 1979 (age 33 to 47)
• Boomers: born 1946 to 1964 (age 48 to 66)
• Seniors: born pre-1946 (age >66)
• Newer real estate professionals are defined as: 3 years or less in real estate experience.
• Seasoned real estate professionals are defined as: >3 years in real estate experience.
Market Enhancement Group, Inc.MEG-Research.com 800.549.9327