I continuously watch and listen to what is happening in the US economy to come to my own conclusions as to whether or not it is a good time to purchase commercial real estate. The debt markets are going through difficult times and reports indicate that the economy is experiencing a slow-down. To this end, I feel that the commercial marketplace is about to head into tougher times. In our sales meeting discussions, the process of closing transactions is occurring at a much slower pace. I think buyers are being more cautious as they move forward with their real estate endeavors coupled with their ability to obtain financing. Because of the credit crunch in the lending industry, underwriting standards have become much more stringent even as the Fed continues to cut interest rates. Despite lower rates offered to lenders from the Federal Government, they are building in larger spreads and passing them off to the borrower, and this has a direct effect on the number of qualified buyers.

It may appear as though waiting for the right opportunity may be a worthwhile decision. I feel more inventory has begun hitting the marketplace; more so than we have seen in a recent years past. Pricing has not been affected much up until this point, however, I think if you look closely at transactions that close, there are more discrepancies between asking price and where pricing is settled. Buyers are beginning to take an upper hand in making this happen. I think the rest of this year and 2009, this trend will likely continue.

Does this mean Buyers are able to control the purchasing process? The answer is NO! While buyers may have an “upper hand” we are still located in a very densely populated and mature marketplace. I predict pricing may come down 10 to 15 percent during this correction. That being said, the commercial buyer who needs to operate their business, should be careful not to miss out on opportunities simply because they feel they can negotiate and name their price. Price gouging is clearly not going to happen in our marketplace. I may thing differently in other areas around the country, but not in the major U.S. markets. Therefore, if you are certain you found an opportunity that will work for your business, be aggressive, but don’t let it get to your head or you will miss out on the opportunity. Despite what I mentioned above about the world of lending, financing is still quite favorable today and you should take advantage under the right circumstances.

If you are the quintessential investor who purchases real estate for investment purposes, I think your cash flow models will continue to be conservative and you will assess risk slightly differently than in recent years. Financing woes coupled with economic conditions will be the main reason for these assumptions in your modeling. Of course, this will also open up opportunities that were few and far between over the past several years; so hopefully, you have saved your capital so you can take advantage of opportunities that unfold. They say “CASH IS KING” and I am still having trouble figuring out an instance where this does not hold true.

I hope you enjoyed this month’s readings and if you want to continue this “conversation” feel free to email me at dlizzack@naihanson.com or call me directly at 201-478-7372. Tune in next month when I have discussion with respect to

Favorite Contact of the Month: SECURITY BUSINESS SOLUTIONS. If you ever wanted to run a background check on an employee you are considering for hire, or if you are interested in knowing something about your new Tenant you are considering for one of your buildings, I HIGHLY RECOMMEND contacting Eric Segal at 201-569-0093 or email Eric at Eric@securitybusinesssolutions.com . Tell Eric you received his name and contact information from Darren Lizzack at NAI James E. Hanson.

Next Month’s Topic: Marketing Commercial Real Estate in Today’s Marketplace.