florida realtors ® commercial real estate lending study

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.


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.


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%


6

Survey Respondents


50%50%

Commercial real estate brokersCommercial real estate non- brokers

7

Survey Respondents: Area of Specialty


58%29%

13%

SalesLeasingManagement

8

Area of Specialty


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


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.


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%


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.


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%


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.


15

Detailed Findings


16

Have Completed a Sale/Transaction This Year



Commerciareal estate brokers

Total

86%

68%

77%

17

Have Completed a Sale/Transaction This Year


Management

Leasing

Sales

Total

53%

83%

80%

77%

18

Major Obstacles for Commercial Real Estate This Year


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


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


86%

14%

YesNo

21

Have Failed to Complete a Transaction This Year Due to Lack of Financing


Management

Leasing

Sales

Commercial estate non-brokers


Total

88%

86%

86%

87%

86%

86%

22

Why You Failed to Complete a Transaction This Year Due to Lack of Financing


Inconsistent financing standards

Very stringent lending standards

Internal underwriting standards

Declining prices

Low appraisal

Lender backed out

5%

15%

15%

38%

56%

69%


23

Has Lack of Financing Impacted Your Clients’ Decisions Related to Commercial Real Estate?


Yes No

84%

16%

24

Has Lack of Financing Impacted Your Clients’ Decisions Related to Commercial Real Estate?


Management

Leasing

Sales



Total

100%

91%

77%

85%

83%

84%

25

How Have Lending Conditions Changed Over This Year


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

26

Which Groups Currently Provide Financing for Commercial Deals


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)


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%

28

Based on your last sales transaction, what was the amount of the loan? (Distribution of Loan categories)


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


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


33%

67%YesNo

31

Your Experience over the Past Year with Commercial Property Appraisals


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%


32

Your Experience over the Past Year withCommercial Property Appraisals


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


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%


34

Suggestions for Practitioners Looking for Commercial Loans


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%


35

Demographics and Experience


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.


37

Commercial Real Estate Experience


72%

28%

Seasoned seasoned commercial real estate (>3 yrs)Newer commercial real estate (3 yrs or less)

38

Commercial Real Estate Experience


Mean Number of Years

Comercial real estate, non-brokers


All respondents

10.21

10.06

10.14

39

Survey Respondents: Gender


62%

38%

MaleFemale

40

Survey Respondents: Age Category


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


Senior

Boomer

Gen X

Gen Y

7%

33%

28%

32%

42

Survey Respondents: Education


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


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.


florida realtors ® commercial real estate lending study

Documents

survey objectivesto

sales transactions

key conclusions86

key conclusionswhen

key conclusions77

major obstacles

different obstacles

lack of financing