A lack of available financing for small investors is hindering the recovery of the commercial real estate market, says National Association of Realtors Chief Economist Lawrence Yun.
While large companies can get financing from Wall Street or international buyers, most financing for small investors comes from regional and local banks and credit unions — and many of them are reluctant to give out commercial real estate loans.
"New financial regulations for all banks, big and small, are resulting in smaller banks bearing proportionally higher compliance costs," Yun said. "Why are the little guys taking the brunt of this? Maybe there should be waivers for smaller banks so they can give out the loans businesses need and help with community development."
He made his remarks in a panel discussion he led at the NAR Legislative Meetings & Trade Expo in Washington earlier this month.
Commercial real estate experts on the panel agreed that the market has shown marked recovery over the last year and its continued improvement will further drive commercial real estate growth.
"Commercial real estate usually recovers two years behind the economy. However, NAR members who practice commercial real estate are seeing a three- to four-year wait," Yun said. "It has been a long and slow recovery, but it is happening."
The commercial sector isn't without its challenges, though. Yun said fundamentals like subpar growth in gross domestic product, stagnating wage growth and low employment rates all continue to affect commercial property demand.
Sam Chandan, chief economist of Chandan Economics, said commercial real estate investors need to be flexible with their approach to the market, bearing in mind that the current narrative will evolve.
"The narrative is that millennials love to rent. They prefer the flexibility and proximity to amenities that come with renting rather than owning," said Chandan.
"However, that fails to take into account that while millennials will always be millennials, they will not always be in their twenties. You could ask a 22-year-old at any point in history if they want to own a house in the suburbs, move away from urban centers, or own a minivan, etc., and they will say no. But that answer has changed in the past and it will change again, and the multifamily sector needs to develop a narrative that takes that into account."
