Banks Tighten Lending to Small Property Management Firms

The commercial real estate sector could be headed toward major headwinds. The Wall Street Journal notes that banks are becoming more reluctant to extend loans to small property management firms as a significant number of loans are scheduled to be reevaluated in the coming years.

The source notes that $276.2 billion worth of commercial-property loans are expected to come due this year, and the continued depression of property values is making it challenging for small business owners to get extensions. The recession and declining economic activity has forced many organizations to repeatedly dip into savings, diminishing their ability to cover any increase in interest rates.

“Roughly 20,000 small commercial properties … are facing distress in the next 12 months,” Phil Jemmett, chief executive at Breakwater Equity Partners, told the source. “We expect similar numbers in the next three years, and then it will taper off after 2016.”

Adding to the problem is the fact banks are more willing to foreclose on properties than in the last few years. Lenders have been able to clear bad residential loans from their books, giving them additional space to make hard decisions on the larger commercial loans. With commercial building values remaining below their 2008 peaks, banks appear ready to cut losses.

Using technology to cut costs Building managers will need to take steps to help ownership groups handle the balloon payments expected to come as a result of the loan revaluation. Property management technology lets operators monitor expenses, capturing data on repairs, contracts, supplies and utilities in an easy to view portal. By analyzing spending patterns, facilities managers may be able to find ways to reduce costs without impacting client services.

Keeping tenants satisfied is an important step to maintaining revenue. Successful commercial management properties track complaints, monitor response times and deliver outstanding service to ensure occupants renew their leases. A steady revenue stream shows reliability to lenders and could prevent banks from foreclosing on properties.

Job growth could provide cushion for the industry The troubles within the commercial real estate industry could have an impact on the overall economy by making it more difficult for businesses to secure needed office space. The Star-Ledger notes that commercial real estate performance generally follows economic expansion.

“Commercial real estate is in lockstep with jobs,” Matt McDonough, managing director at Transwestern, told the Star-Ledger. “When you see 20 percent office vacancy rates, you know jobs are down.”

Momentum is picking up for the economy, as NBC News reports that the U.S. employment report due this week is expected to show 150,000 positions were added to payrolls in April. This continues the general trend of recent job creation and could provide businesses with the confidence they need to expand their operations, generating more potential clients for property managers to attract.

Building managers need to be aware of various trends within industries to anticipate their clients’ needs. If tenants are expecting growth as a result of the strengthening economy, facility operators should be ready to provide a solution if they require additional office space.

Source:  Industry News

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