Commercial Mortgage Notes Compensate for Real Estate Market Changes

There’s been so much in the news about residential mortgages in 2008 and 2009 that it’s overshadowed the other core element of the real estate market: commercial properties. Commercial real estate note buyers like us are becoming a more critical part of the market, since we’re able to broker mortgage notes with less of value distortion and one-size-fits-all qualification problems that plague institutional mortgages. Commercial real estate is in the middle of a major shift. You can see it in malls that turn into offices and in vacant storefronts in the middle of well-trafficked downtowns across America. What’s going on?

 The collapse of the housing bubble has definitely had a significant indirect effect on commercial real estate for easy to understand reasons. As credit dries up and companies downsize, they can’t afford the office space they once occupied. They move to smaller units or in some cases, have to close up shop completely. There’s less credit for consumers too, and a greater awareness of exactly how much of a problem individual debt poses. People are spending money more carefully, and retail sales are feeling the pinch.

The other ongoing issue represents a more fundamental transformation in how we work and shop. Commercial property demand is shifting in response to the rise of online shopping and telecommuting. But does this mean that office and store spaces are obsolete? The answer is a resounding “No!” There will always be businesses that need a robust on site presence, and where you’ll always prefer face to face contact. The challenge won’t be finding tenants at all, but finding the right tenants. This adjustment will dictate a new business plan for commercial mortgage holders. The best tenants will operate at a different scale and have different demands than they’re used to.

Some people will look forward to the new way of doing things – but others won’t. They’ll want to either move on to a new business or switch up their existing properties for a more suitable selection. If that’s the position you’re in, you may want to sell your commercial mortgage note. The market is changing fast, and traditional, bank-moderated transitions may lack the speed to keep up.