We raised the issue a few days ago about the problems some are seeing in the Twin Cities commercial real estate markets -- specifically concerns about financing and a coming foreclosure wave.
We reached out to more than a dozen experts from MPR's Public Insight Network for perspective and got some great feedback, including two more views we thought were important to highlight in a second post.
"My clients are experiencing more difficulty getting their properties to appraise at a level sufficient to refinance existing principal mortgage balances," said Brent Holmes, owner / broker with the Twin Cities firm Holmes | Tongen Investment Real Estate Sales.
"As a result, my clients are more frequently having to bring additional cash (aka equity) to close a refinance of their properties. "
The same is true on acquisitions; in many cases purchasing power has declined - in some recent examples it takes 3 times the equity to make the same acquisition as it did 2 to 3 years ago.
Owners / investors are experiencing an erosion in their balance sheets, which makes it much more difficult to borrow dollars. Operating lines of credit have been eliminated or much diminished even for very strong clients.
All this leads to a cash crunch and higher risk of problems coinciding with the maturity of debt. There is an inability to sell and an inability to refinance -- yuck!
There are owners with strong equity in their properties, he adds. "Most owners that I am in touch with are finding there way through, but it remains a difficult uncomfortable time."
Tarry Edington typically deals with residential housing in Grand Rapids with teh Itasca County Housing and Redevelopment Authority
But the housing development specialist was willing to share his commercial real estate observations on the town he's lived in for 20 years. He says he's never seen so much commercial real estate for sale and for lease.
What I see is that which is advertised for sale or lease, most of which is retail and office space. I am certain there is other property, as there always is, that is vacant and available but not openly advertised.
I have seen some of the advertised property vacant for well over a year. And, it appears there are additional properties coming into the market regularly. In addition to the vacant properties, I observe an increased number of small businesses for sale. It is my conclusion that the vacant commercial real estate and the businesses for sale are a reflection of the general economic conditions.
While the Grand Rapids community remains vibrant it is obvious there is a retraction in the level of economic activity... Some of the "strip mall" and "reuse/conversion" properties have never been occupied because they were just coming to market when the recession and meltdown events occurred.
Minnesota Public Radio's Dan Olson gave us an in-depth look last year at the commercial real estate market in the Twin Cities and the potential for a foreclosure storm. The basic problem then -- making payments and refinancing -- haven't gone away.
"Those issues are largely hidden from public observation," Edington added. "In large part, the resolution of those issues will be dependent upon equity, cash flow, property valuation and lender forbearance. We will all get to observe as it plays out in the days ahead."
UPDATE: A new University of St. Thomas survey shows "light at the end of the tunnel for commercial real estate in the Twin Cities market," signs of recovery over the next two years. We'll interview the St. Thomas prof who oversees the survey and post later.
Think these concerns about commercial real estate are on point or out of line? Post your insights below or contact us directly.