Some people in Florida who have invested in the historically strong commercial real estate market may be concerned about reports indicating a potential downturn. In 2016, returns came in below the 20-year average for the first time since the financial crisis of 2008. However, those returns have hit double digits consistently throughout the past two decades, with an average of 10.1 percent.
Florida residents who are interested in commercial real estate should be aware that purchasing and managing investment properties properly requires significant effort. The challenges can lead to certain mistakes, which investors should make every effort to avoid.
Rising rents and low vacancy levels may position the commercial real estate sector to provide stable returns to investors in Florida and around the country according to NAI Global. The real estate brokerage firm mentioned that demand was strong in the second quarter and could remain strong for the rest of 2017. The net absorption rate nationally in the industrial sector rose to 71.8 million square feet while rents rose 1.6 percent in the second quarter.
Thorough due diligence is crucial for commercial real estate buyers in Florida who wish to avoid costly mistakes, and taking care of the issues raised by these inquiries early in the transaction process can save both time and money. A due diligence period gives buyers the time they need to inspect properties and check out the claims made by sellers, and purchasers may back out of deals or negotiate more attractive terms when their efforts reveal building defects or uncover irregularities in financial documents.
Many Florida residents may invest in real estate by buying a second home. This is because they are familiar with the process of buying property and understand how it can appreciate in value over time. However, an individual may underestimate the challenge and risk in owning a single-family home for investment purposes. In many cases, it may be easier and more effective to passively invest in commercial real estate.
Florida investors are likely aware that August is normally the slowest month for commercial real estate leases and sales. However, August of this year is different as is the summer so far as a whole. Commercial real estate has seen a strong uptick in business with more activity around the country than during the spring and winter as well as the summer months of prior years.
Commercial real estate in Florida sometimes offers investors good returns. However, lenders have raised their standards for financing property purchases. A report issued by the Federal Reserve System shared the results from a survey of loan officers, who have placed stricter qualifications on business property mortgages. The survey collected responses from officers at 98 banks operating in the United States.
A Florida resident who wants to borrow money for a commercial real estate project may believe that getting loan approval is a formality. However, the lender may not necessarily see it that way. If a person has tax issues, late payments or other credit blemishes, it may not be possible to approve a loan application. The only way to overcome these issues may be to have another person or entity guarantee the loan.
Seasoned real estate investors in Florida understand that studying the details of a property is as important as paying attention to macro-trends in the market. For those looking to enter the commercial real estate market, due diligence may seem like overkill at times, but intimate knowledge of a property is an important part of making a sound investment.
A combination of market forces and more conservative lending practices are making it more difficult for commercial property developers in Florida and around the country to refinance their loans, according to some industry experts. Developers planning new projects generally take out construction loans that must be refinanced after five to seven years, but insiders say that fears about a looming commercial real estate asset bubble and strict new regulations introduced by laws like the Dodd-Frank Wall Street Reform and Consumer Protection Act have made banks less willing to lend.