Someone recently pointed out to me that the Chinese have two brush strokes that combine to form the word “crisis.” One stands for danger and the other for opportunity. Certainly, the past 36 to 48 months have both given us a deep concern for economic danger, yet have also uncovered opportunities when one could see a future through a sea of immense challenges. The light at the end of the tunnel isn’t always a speeding train. Taking time to look for any pros to balance the abundance of cons in the current economic landscape may give you a piece of critical information that could open doors you hadn’t considered before.
Interest rates continue to be reasonable, and vacancy factors have created more inventory and purchasing opportunities than we’ve seen in the commercial marketplace in years. It’s an enviable time to be a buyer in the position to take advantage of SBA lending programs that are still available. SBA Lending Resources has a limited pool of stimulus money available to subsidize lending fees and continues to encourage businesses to borrow and buy facilities and develop their operations. SBA loans typically only require 10 percent down and that you occupy 51 percent of the property. The loan can be amortized over 25 years at prevailing market interest rates. I recently heard of one bank that will allow a minimum of 40 percent occupancy. Businesses that can take advantage of these loans actually create another investment account by seamlessly using their lease payments to develop and create their own equity; even if they’re just paying down the mortgage.
Not interested in buying? Consider that most owners/landlords are extremely receptive to discounting their commercial rental rates to ensure occupancy for their buildings, and leasing rates for all commercial property sectors have never been more affordable. It’s important to note that Sonoma County’s economy is comprised of a significant number of entrepreneurial businesses, and we’re fortunate to have a talented database of active entrepreneurial minds contributing to and accelerating the financial growth and economic recovery of our county.
One really encouraging sign of a sprouting economic life is the venture capital raised by several Sonoma County technology businesses in the last quarter of 2009. According to the Press Democrat, they collectively raised almost $312 million in new funding. Some of the more high-profile companies to raise funds included Raydiance Corp. (received $3.1 million), TriVascular (received $30 million), Oclaro (raised $26 million), Cyan Optics (raised $22 million), Dilithium Networks ($10.9 million) and Teknovus ($5.6 million). This is an almost amazing juxtaposition against the anemic collective $13 million raised between 2008 through the first quarter of 2009. Nationwide, venture capital funding for the fourth quarter was up only slightly. Other technology companies that have realized significant growth in the past year include American TonerServ, i2i Systems, Aethos Technologies and ClairMail.
Income-seeking investors are finding cap rates have gone up and continue to rise, breathing life into the lackluster real estate demand. Money continues to stand still with a “wait and see” attitude and remains stuck on the sidelines. NNN leased investment opportunities that yield investors 7.5 to 9 percent in annual returns were trading in the 6 to 7 percent range even two years ago. The lack of competition is giving savvy buyers a distinct advantage in negotiations and flexing buying power. Conservative NNN leased investments with 10-year leases in place, growth area demographics, strong underlying fundamentals and quality tenants such as FedEx or Walgreens are trading at cap rates of more than 8 percent.
For those with concern and frustration over the stock market’s volatility, consider that today, you can buy NNN commercial real estate opportunities that will give you as good or better returns than the bond yields—and you own the real estate. This gives the added value of tax advantages, the potential for long-term real estate appreciation, and the ability to still enjoy a consistent income stream.
Remember, as you absorb all the economic gloom and doom littering our abundance of communication resources, the California residential market has historically experienced seven-year appreciation cycles. The median housing price in Sonoma County has gone up approximately 25 percent in the past 12 months from its bottom in the low $300,000s to $389,000 as of January 2010. This may be little consolation to those who saw their home appreciation vanish in a sea of short sales and REOs, but it’s a strong sign that the tide has turned. You might not see this upward shift in price acceleration in the central valley, so it’s encouraging to note that Sonoma County is continuing to weather the housing drama better than a lot of places in the state.
Henry Ford is credited with saying something to the effect of, “If you believe you can, or believe you can’t, you’re right.”A lot of businesses are looking for new opportunities and a new attitude of seeing and focusing on creating growth opportunities will offer significant returns to those willing to see the glass as half full. Never let what you can’t do interfere with what you can do.
Annette Cooper is a senior real estate adviser with Keegan Coppin/ONCOR International. You can reach her at acooper@keegancoppin.com.
