Opportunities for Owner-Occupied Buyers

It is no surprise to anyone that demand in all segments has been hampered in this economy. There is significantly less capacity in the credit markets, so the growing supply of properties on the market cannot be easily absorbed.

At the same time, this supply-demand picture presented some great opportunity for buyers to find properties at levels of affordability not seen in a long time. So with banks strapped for lending capacity, how was the typical buyer able to capitalize on this market?

The answer for many clients in 2009 came through a combination of the structure of the property for sale, and government guarantee loans.

One successful sales strategy for sellers of larger multi-tenant buildings has been to convert the building to commercial condos. Restructuring the building as condos has done a couple of things for these sellers. First, it provides an incremental exit strategy for those owners who don’t want or need to sell the entire building.

Second, it greatly expands the market of potential buyers. This area’s economy is centered on a lot of small businesses. Many of these business owners would like to own their own space but find a limited supply of buildings small enough to fit their needs.

At the same time many lenders in the region are challenged with too much real estate in their lending portfolios. As they look to reduce exposure in this area, they become selective in the types of real estate loans being made.

As a general proposition, lending on properties held for investment is less available than loans for owner-occupants. Lenders have more capacity to loan on owner-occupied space than property held for speculative investment because it is seen as less risky. So a building that has condos for sale will be able to pull in interest from these types of borrowers.

Owner-occupied lending can also be coupled with a government loan guarantee, which is the second factor helping move this area of the market.

We saw a great many loans processed for owner-occupied buyers using guarantees from the Small Business Administration (SBA) and Department of Agriculture (USDA). Area lenders work with these government agencies to help reduce the bank’s exposure while providing the source of money to allow commerce to keep churning.

We reported throughout last year that these programs have some nice features for small business owners, such as lower down payments and the ability to wrap in costs for renovations, machinery and equipment. In a time where businesses want to preserve cash reserves, those were huge selling points to our many clients who put the loan program to work.

If you or someone you know wants to explore wealth creation by owning a building, give us a call. We’d be happy to put you with some great lenders who can show you how attainable that goal might be.