Savannah Commercial Tenants: Is now the time to buy?

Favorable borrowing rates, lower construction costs, add to that the significant drop in property values over the last 3 years, and there is a very strong case for business owners to consider owning their real estate.

SBA FINANCING

If ownership aligns with long term business plans and the tax implications are favorable, a stable business or a collateralized start-up can find favorable financing.   Conventional lenders are certainly out there lending money, but Small Business Administration (SBA) loans are coming back into favor for several reasons: 1. Conventional financing now requires more than a pulse to qualify.  2. The SBA has some aggressive programs with improved processes that have made them more user-friendly.  3. Lenders are specializing in SBA loans and know how to get through the process more efficiently. In some cases, they have pre-approval from the SBA to underwrite loans that saves time, so make sure you start this process with a SBA specialist.

The primary SBA loan programs applicable are 504 and 7(a), both of which have received recent tweaks in hopes of spurring growth out of the recession.   For as little as 10% down, you can purchase a building and roll in closing costs, all loan related fees, equipment costs, furniture, building improvements,  as well as business credit card debt and other existing lines of credit.  The loans can be used to buy a business or even refinancing an existing building or other debts.  Loan limits have been increased up to $5 Million and terms are usually fixed for 10 or 20 years, much longer than conventional loans.

CONSTRUCTION COSTS

With new construction at a standstill, contractors have had to trim down their profit margins significantly in order to win a job and keep their people working.  This can be also said for all the related industries - architects, engineers, etc.  Some materials costs may fluctuate, but overall now is an exceptional time to consider building new or making improvements to existing structure that will add value long after the current economic slowdown corrects.

PROPERTY VALUES

I hate having to tell my clients that want to sell this, but nationally values are down anywhere from 35 to 45 percent from their highs in 2007.  We are still bumping along the bottom, but in May we saw a 6.3% increase in the Moody’s/REAL Commercial Property Index (CPPI).  A plus, this was the first positive move in six months and the largest one-month increase since the index started.

One of the factors of the increase, distressed sales saw an increase of 4.8% and where 27.0% of repeat sales.   Property owners that have had tenants evaporate or bought at the height of the market are willing to, as well respected local developer told me, “forget about the cheese and just get out of the trap.”  There is just not enough demand to absorb the vacant space and will be this way for some time to come.

Given all these factors, even modestly positioned business owners have an incredible opportunity that we are likely not to see again for a very long time.

Rex Benton is Savannah Commercial Real Estate agent with NAI Savannah, the commercial division of Mopper-Stapen, Realtors and is a contributing columnist for “BiS-Business In Savannah” weekly business publication and is an active blogger. www.naisavannah.com 912-358-5600 Office Space, Retail Space, Industrial Space, Investment Real Estate Sales