Commercial real estate was a popular topic at the recent REALTORS® Conference & Expo, where lenders and government representatives weighed in on industry trends that are shaping the future. For example, commercial real estate financing is expected to become more simplified as automation makes underwriting faster and more predictive. Here are the “hot topics” from the panel of experts, according to Realtor.org, along with our own thoughts!
The capital acquisition process will become more responsive for borrowers and lenders. The amount of “big data” being customized and distributed throughout the commercial real estate industry will lighten the paperwork for loan applicants. For individual and institutional borrowers, automated income reporting from the IRS and agencies like CoStar will soon replace the reams of tax returns that are normally required.
Investors who customarily minimize their taxable income, however, may find that their financial strategies must account for future borrowing needs. While everyone wants to pay the lowest possible income tax, showing a lean income due to heavy expenses and depreciation could backfire when trying to qualify for a loan. As manual underwriting diminishes in favor of wide-scale automation, the downside could be a process that involves very little human decision, or consideration for mitigating circumstances.
On the bright side, big data will enable lenders to more accurately predict future valuations for commercial property. This means that lenders will soon have data insights that help offset commercial property appraisals, which are often stuck in backwards-looking comparisons.
Another positive trend is the surge in small business growth and entrepreneurship. While owning a home has been the long-held “American Dream,” it’s arguable that owning a business is running a close second! Streamlined commercial loan underwriting and property valuation should open more doors for new investors and business owners.
Crowdfunding will offer solutions for under-served markets. Typically, “Class A” commercial space dominates the portfolios of traditional commercial lenders. But crowdfunding companies are finding high yields and plenty of opportunity in Class B and C real estate. This could help revitalize urban and suburban markets that are less popular with major lenders.
However, applicants seeking financing for Class B and C commercial property will need to demonstrate market expertise and solid business plans. Crowdfunding lenders are also very focused on the borrower’s own ability to repay, which could weigh heavier than the recovery value of the property. Still, the predictive modeling that is coming with big data will help project future property valuations, which will be an advantage for these applicants.
Overall, as financing commercial property in the Boston Metro becomes easier, we can reasonably expect continued growth in commercial property values, spurred by a wider base of investors and business owners!
Ready to begin, expand, or relocate your business? Team up with an experienced commercial real estate broker who understands the market. Whether you are thinking of buying or leasing Boston Metro commercial real estate, we can help you find the ideal property. Please contact us today for expert guidance!