The Commercial Lending Market Environment in 2015: California and Comparison to Key Cities

In March 2015, the National Association of Realtors (NAR) randomly surveyed 49,485 realtors asking them about the housing market conditions in their particular state during that past year. 791 individuals – 1.61 percent – responded. As realtor who works in California, I found it informative to work through the different reports, categorize them according to challenging and easy conditions, and wrap up by comparison to real estate conditions in California during 2015.

Commercial lenders, investors, or anyone interested in buying or selling property may find this analysis informative and interesting. Here it is.

Some states found the market environment to be feasible.

Some states such as Illinois found 2015 to be a booming time for real estate. Agents in Chicago revelled in opportunities.

This broker had this to say:

[… ] Best market in my 40 year history. These are the “good ole days”! – Tennessee The property taxes are out of control, especially for commercial properties.

But another added

The property taxes are out of control, especially for commercial properties.

Other states suffered from their market environment

There were the common gripes: Recession, economic uncertainty, spiking prices, topping default, languishing homes because of unaffordable prices or distressed or unstable markets.

Said this agent in New York:

Economic uncertainty is a close third choice to item 3 above. The ‘local’ commercial investor remains hard-hit by the recent recession. Significant vacancy still exists for many ‘neighborhood’ centers.

And another:

We live in a distressed area it makes it very hard to start or maintain a business in small town America.

Montana in 2015 was another pricey area. Real estate agents there noted:

Declining rates of return. 7% today is reduced by low annual increases to the point of leases being a detriment the longer they are in place and that affects a bank and buyer being attracted to them. Net present value of future dollar return: 10% every 5 years ends up being a loser in the long run not being able to stay even with historic 3% or 4% inflation.

Fussy lenders

Other states, this last year, saw fussy lenders who were more reluctant to lend. A great deal of this was due to tightened government regulations and heightened consumer protection that was especially taut for residential property.

In Missouri, for instance, real estate agents mentioned that:

Reduced net operating income of the Subject Property and the Borrower, values and equity positions (larger equity contribution to the transaction and lower loan-to-value) have a HUGE impact on the decisions lenders are considering and making. Money does NOT seem to be the problem.