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Basic Training

Financing Focus
Basic Training
These tips can help investors and owners shape up to face the unpredictable future.
by Gary M. Tenzer

Commercial real estate has experienced a dynamic market shift during the past five years that has affected nearly every aspect of the industry. As the slow economic recovery remains fragile, many commercial property owners and investors wonder if they can
survive the still-shaky market. The answer is yes, they can.

The solutions for the future are rooted in back-to-basics fundamentals. The following survival tips equip commercial property owners and investors with strategies to successfully navigate the unpredictable market conditions that lie ahead.

Be Prepared

Preparation is the first and most important step to surviving a severe financial downturn. This step is especially critical in commercial real estate, since the industry is affected by so many variables that are outside of property owners’ and investors’ control.

A key preparation strategy is to monitor the capital markets and fluctuations in financing availability and industry trends. Keeping a watchful eye on emerging patterns can help owners and investors better understand real estate cycles and steer clear of danger.

In addition to analyzing industry trends, it is essential to keep track of the U.S. and global economies. With potential policy changes looming ahead after the upcoming presidential election, U.S. business owners should evaluate their current strategies and assess how they may be impacted by legislative modifications and the resulting global trends.

Know Your Clients

Clients can be a good barometer for what is coming next in the industry. An in-depth understanding of the financial markets and U.S. global economies can help companies better serve their clients as the industry shifts and changes. By understanding and monitoring lenders and industry niches, companies will be better prepared to change gears, secure different types of lending sources, and adapt to lenders who will provide the best financing programs for their clients’ projects.

For example, after the savings and loan crisis in the 1990s, savings and loan entities disappeared, leaving a major shortage in commercial capital availability. At the time, George Smith Partners recognized that it needed to change its focus from savings and loans to the emerging Wall Street conduits and commercial mortgage-backed securities market. As one of the first companies in the industry to arrange CMBS financing, GSP built strong relationships with these new capital sources, many of which have become long-standing business relationships.

Communication Is Key

Technology evolves almost as quickly as the markets change. Commercial property owners and investors must harness new technologies and stay connected with clients, lenders, and other allied professionals. Ongoing communication and use of the latest technology is vital to retaining growth during a recession, as well as for staying at the forefront of the changing market.

For instance, in an effort to better market its services to clients and capital providers, GSP created a weekly faxed newsletter focused on insights into critical and relevant issues affecting the commercial real estate and financial industries. Over the years the subscriber base has grown; the newsletter is no longer faxed but now emailed to more than 100,000 recipients each week and has become a resourceful, invaluable tool for clients and industry constituents.

Company leaders must identify the communication tools that best suit their industry niche and client base. For some, the ongoing conversation and visibility of social networking sites such as Facebook, LinkedIn, and Twitter can be far more beneficial to business development than more-traditional forms of communication. However, companies must strike a balance between traditional marketing and current communications techniques to remain successful.

Watch the Road Ahead

Predicting future market cycles is a difficult task, with unexpected sea changes in the capital markets as well as the macro and micro economies that affect real estate. Yet it is imperative to focus on the road ahead and try to look around corners to anticipate what is next.

In the short term, November’s U.S. presidential election is likely to have an impact on the economy, employment, regulation and taxes, and the fiscal markets, all of which impact commercial real estate. In addition, Europe’s financial crisis will continue to have domestic economic repercussions.

 In the long term, the future of commercial real estate largely depends upon the economy and job creation over the next decade. There are some promising indicators that the economic train is on the right track: Capital markets have become more aggressive, and lenders and equity sources are actively seeking solid commercial real estate assets to finance. However, the economic recovery remains susceptible to many global and domestic factors that are rapidly changing.

As property owners and investors look ahead, it’s wise to take lessons learned in the recent past and use them to strategize for the future. With the right strategies and tools, property owners can prepare themselves for whatever the market may hold in the years ahead. 

 

Gary M. Tenzer is principal and managing director of George Smith Partners, a national real estate investment banking firm celebrating its 20th anniversary. Contact him at gtenzer@gspartners.com.

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