4 Commercial Investor Tips

Emerging Trends in Real Estate 2011, an annual investor survey conducted by PricewaterhouseCoopers and the Urban Land Institute, offers these investors tips.


1. Lock in loans. Don’t make the mistake of waiting for loose credit that may be a long time coming. Interest rates are low but will inevitably increase.



2. Hold REIT shares. REITs are all about yields (forget appreciation) and a solid dividend in an uncertain environment. Even with recent REIT value run-ups of 28 percent in 2010, according to the National Association of Real Estate Investment Trusts, funds with high-quality assets should be less volatile than most stocks.



3. Buy land if you can afford to hold it. Developable land prices are cheap, although the wide bid-ask spread is still a challenge for buyers. Remember, says Rochelle, historically most of the big money is made in land plays.



4. Choose infill. Predicting the direction of new growth is tough, so central locations are somewhat lower-risk investments. Infill offers businesses a more diverse employment base, especially among younger workers who prefer urban living.





Source: Mitch Roschelle is U.S. real estate advisory practice leader for PwC, New York.

Below-the-Radar Short-Sale Issues

You could end up having to pay those outstanding incidentals if you don't work out responsibility for the seller's lenders with buyers ahead of time.

Incidental fees. In short-sale transactions, the seller’s lender typically won’t pay many of the outstanding incidental costs at closing such as title and survey fees, unpaid water bills, and overnight document delivery fees. So, you could end up having to pay those if you don’t work out responsibility for them with buyers ahead of time.



Home inspections. Given the uncertainty of obtaining the lender’s OK, it’s not unusual for buyers to want to delay ordering the home inspection until after lender approval. But such a delay can hurt buyers if the inspection turns up something they don’t like. They need to be comfortable with the condition of the house before seeking lender approval for the deal.



Contingencies. Buyers face the same contingency issues that they do in any other transaction. They need to be sure they can get financing before asking the seller’s lender to approve the deal; otherwise, after their lengthy wait for the seller’s lender, the deal might still collapse.



Client communications. During the approval process, weeks can go by with no contact from the seller’s lender. You should remain in regular contact with buyers to tell them what you’re doing even when you’re hearing nothing from the lender. If the lender eventually says no to the deal, your clients might wonder if you did all you could during the process. By checking in regularly, you signal to buyers that you’re on the job.



Distressed HOAs. Look carefully at the financial condition of the home owners’ association because lenders can throw your buyer for a loop if they refuse to make a loan for a home with a distressed HOA. From lenders’ perspective, there’s a risk of deferred maintenance and repairs and a risk of future dues assessment increases. Review the HOA’s financials with an accounting specialist, and look for elevated spending by the HOA on attorney fees.



Source: Kevin Coyne, The Coyne Law Firm, Oakbrook Terrace, Ill