Secondary and tertiary markets—often considered riskier and more challenging—are proving lucrative to many first-time commercial real estate investors. NorthMarq Capital’s leaders across the country reveal opportunities in areas outside of the primary coast and business centers, which should make borrowers reconsider investment in those markets.
San Antonio enjoys great capital liquidity when it comes to the commercial and multifamily real estate markets with robust interest from local, national, international and institutional investors. Local economic metrics point to sustained stability and growth. The unemployment rate remains well below long term averages. There is in migration of professionals capitalizing on employment opportunities and seeking to benefit from perceived low cost of living, lifestyle and cultural attractions. This creates investor confidence and compared to peer markets, the initial basis for investment in properties in San Antonio is favorable. Given these factors, San Antonio remains a dynamic and attractive investment market across all property types for both investors and lenders. – Bryan Leonard, SVP/managing director
Cincinnati: While lenders do not offer aggressive loan terms on properties in smaller markets, these properties can be financed, albeit at lower loan-to-value ratios. Some life insurance companies will lend in smaller markets, others will only lend in markets with populations of 100,000 and above. Life insurance companies will consider loans on these properties at lower loan-to-value ratios, say 70 percent or less. Commercial banks will lend in smaller markets yet with loan recourse or guarantees. CMBS lenders are a good source for loans on properties in tertiary markets, yet interest rates can be higher and there will be reserves for tenant turnover. Apartment and retail properties are easier to finance in smaller markets since success is driven by the consumer versus commercial activity such as office and industrial properties. Property owners like these markets because there is less competition than larger markets; lenders can obtain a higher rate since loan risk is higher in smaller markets. – Susan Branscome, SVP/managing director
Our Rochester, New York, office is seeing volume in adaptive re-use projects, due to millennials flocking to urban lifestyles and amenities. Typically, smaller regional banks and credit unions take the lead on the construction phase of these CBD conversions, then agency financing is used for these multifamily projects as they stabilize. Many of the Upstate New York markets are stable and exhibit moderate growth trends. Since lending institutions prefer stable economies, this has supported continued investment in this market. – Sam Berns, SVP/managing director
In Westchester/Fairfield Counties, borrowers tend to lean towards banks which require recourse in favor of a simple underwriting process and competitive rates. Multifamily oversupply is a growing concern for the area, with an upward trend in vacancies. Despite this increase in supply, there continues to be demand for rental housing in Westchester and Fairfield due to the significantly higher costs of housing in Manhattan. Fairfield County saw significant growth in retail properties that traded in 2016, which created numerous opportunities for acquisition financing in the market. This recent sales activity is due to limited land availability and the fact that Fairfield County (as well as Westchester County) are still considered to be under retailed. – Robert Ranieri, SVP/managing director
Charlotte/Raleigh is also a hot spot for multifamily properties, with estimates of 150 new people moving to the area daily. Most news headlines are focused on class “A” structures, but there is a huge market for class “B” and workforce housing in the areas surrounding major metro areas. In this market, banks continue to be the primary competition as we utilize life companies for their decent leverage, non-recourse and ease of execution. The rapid delivery of class “A” apartments and office has caused a slight uptick in what has been historically low vacancy but this will be mitigated as the Carolinas continue to experience rapid growth. – Dave Stewart, vice president
NorthMarq Capital producers nationwide are known for their ability to find the hidden opportunities in each market. Our rare balance of national strength and local expertise provides lenders and borrowers with the best chance of success.Download PDF