Capital Concerns for Commercial Real Estate
THREE QUESTION THURSDAY:
Join your hostess (with the mostess), Olivia Garrett and Keyser advisor, Brian Uretzky as we dive the following three questions:
1. What are the options for people who want to secure funding for their commercial real estate projects?
2. How attractive is the market right now?*
3. When it comes to borrowing or lending money, how can you protect yourself?
*As a note, this episode of Three Question Thursday was released before the Coronavirus fears. The professional opinions and information in this video may be out of date.
We have a unique addition here to the Keyser team, Brian Uretzky.
Hi, my name is Brian Uretzky and I joined Keyser as a Commercial Markets Specialist.
I've been in the finance, commercial real estate, and investment side of business for roughly twenty years. I'm here to provide a new perspective for members at Keyser.
We are super happy to have him on the team. So, jumping right into our three questions, we're going to focus a little bit on capital today.
So, capital is a growing concern for businesses all over the world—and for good reason.
What are the options for people who want to secure funding for their commercial real estate projects?
I think that's a great question. I think there are tons of options when it comes to raising capital
First, I like to put all those options into three major buckets.
First, you can borrow money.
Second, you can find an equity partner.
And third, you can sell assets.
In terms of all of those options, I think that they all come with positives and negatives and it depends on the entity and the cost/benefit analysis to help determine which route you should go.
When looking at those positives and negatives, when having an equity partner, as an example, I think the positive is that you share or you limit some of your downside risk, but you also limit some of your upside potential, as well as some of your control.
So in terms of getting an equity partner, there are pros and cons so you really have to weigh all of those options before you go down the road of raising capital.
Okay. The market is always fluctuating, so how attractive is the market right now?
I think that's another great question. I think that, when it comes to your perception of the capital markets, it depends on who you are.
As a lender or an investor at the moment, I think you look at the capital markets and it looks unattractive. You've got stocks at all-time highs, you've got rates near historic lows. So when you're looking at things from an ROI perspective, it's a lot weaker than what you're used to seeing. However, if you're a borrower or someone who's looking to raise capital, you look at the capital markets and you think they look great.With rates at or near all-time lows, your cost for financing is much lower than what you're used to.
Additionally, there's a ton of money out there looking to be invested in commercial real estate. If you look at some of the private fund data, there's over $300 Billion in capital out there looking to be invested in commercial real estate, so if you're a borrower or someone who's trying to raise capital, you have a wealth of options out there and I think you'd think the capital markets look tremendously attractive at the moment.
Okay, so when it comes to borrowing or lending money, how can you protect yourself?
That's another great question, I think that operating within the capital markets space always demands a certain amount of due diligence. When you're a borrower, or someone who's looking to raise capital, I think you really have to understand the reason why you're raising that capital, the project behind it as well as how much money you need, how much you're willing to pay for that money, as well as how long you need that money for. I think if you get a good grasp of all of those issues and all those factors I think you're on your way to making a good decision within the capital markets space.
Coming from the other side, if you look at it from the lender's perspective, or the investor's perspective, I think that the amount of due diligence may be even more extreme. When thinking about things from a lender's perspective, I like to go back to grade school a little bit, think about who, what, when, where, why, and how
Who: Who am I lending to and how risky is that entity?
What: What is that environment like and what are the odds that entity is going to be able to pay me back.
When: When will I see that money?
Where: Where's my money going?
Why: Why are they coming to me?
Why do they need the money?
How: How are they going to achieve the returns that they are promising?
I think if you ask all those questions and you're thoughtful with the answers and you get to a place where you're comfortable with those answers, I think you're on your way to making a really smart decision within the capital markets space.
That's some really good advice!
Thank you again for joining us this week on Three Question Thursday.
See you next week!