According to Real Capital, sales transactions of office towers, apartment buildings, hotels, and shopping centers have declined since 2015 when sales transactions totaled $262 billion; this total actually was a decline from 2007 when sales totaled $311 billion across the United States.
Because commercial property has slowed, many landlords who cannot sell their properties have accessed the capital in their properties by turning the debt capital markets and refinancing their properties to extract equity instead of finding buyers.
It seems sellers have a price point they value their properties at, and the market to purchase has not caught up to that value. However, lenders see the value in the properties, because the lending demand in the debt capital markets have increased with banks, insurance companies, hedge funds, and private equity firms interested in investing in commercial real estate loans versus lower-yield bonds, which has given property owners an option to retrieve gains if their properties do not sell.
In an article written on Bloomberg.com, “NYC Landlords That Can’t Find Buyers Turn to Borrowing Instead,” there is a quote made by Scott Rechler, Chief Executive officer of RXR who sums up the state of the commercial real estate market best…”The basic trend is you have a really strong debt market and a sales market that has hit the pause button while it seeks to find price discovery.”
But, who knows how long that discovery will take. Therefore, landlords who have held their properties for years seem ready to collect on their appreciation. And, lenders are refinancing existing debt and allowing property owners to cash out to keep the gains for themselves.
Here are five other reasons to consider refinancing your commercial real estate loan:
- Refinance and cash out to use the money to free up working capital for other business ventures, or to put money down on other commercial real estate investments by taking advantage of the poor sellers’ market, or improve the value of other real estate assets.
- Refinance and cash out to lock in on historically low rates, before they increase. By taking advantage of rates now, your mortgage payments could be, at or below, your current mortgage rates while securing the gains on your property.
- Refinance and cash out to consolidate high-priced debt obligations, that could increase cash flow for your entire enterprise.
- Refinance and cash out to distribute dividends to investors to keep them interested in investing in future endeavors.
- Refinance and cash out to put funds into a savings product that simply collects interest and gives you cash-on-hand for future investments when sellers come down on their real estate prices.
These insights are based on an article written on Bloomberg.com. We encourage you to read the entire article for more outlooks to the commercial real estate market.
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Graphical depiction of the real estate drought in New York City, provided by Bloomberg