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Global Real Estate Downturn Can Kill Growth, Canada Most Vulnerable: Ox Econ – Better Dwelling

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Global Real Estate Downturn Can Kill Growth, Canada Most Vulnerable: Ox Econ  Better Dwelling



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Is now the right time for your business to buy real estate? – BNN Bloomberg

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For small businesses hoping to establish or expand their brick-and-mortar presence, it may seem like a bad time to sink cash into a commercial property purchase.

Amid predictions of an upcoming recession, the U.S. Federal Reserve increased the federal funds rate for the sixth time in 2022, citing inflation risks and global conflict. Inevitably, this will make loans more expensive for borrowers.

In reality, though, the perfect time to buy commercial real estate doesn’t exist. And when you consider the bigger picture, not all signs point to doomsday.

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 “There are still really amazing opportunities out there, but I think it really requires small-business owners to think about what their goals and their plans are,” says Alyssa Dangler, a commercial real estate attorney and president-elect of Commercial Real Estate Women Network.

Here’s what small-business owners should consider when deciding whether to purchase commercial real estate.

COST OF BORROWING

While higher interest rates might not make or break a deal, they could push business owners to cut the size of their down payments or reduce spending elsewhere to accommodate larger monthly payments. Small-business owners waiting for interest rates to fall might be in a holding pattern for longer than they expected, though. According to the Federal Reserve, future fed rate hikes are likely.

However, today’s interest rates don’t seem as astronomical when you look at rates throughout history, Dangler says. For instance, the annual average rate for a 30-year fixed-rate mortgage was 8.39 per cent in 1992 and 16.04 per cent in 1982. This year’s average currently stands at 5.08 per cent.

Some entrepreneurs, like Elaina Paige Thomas, owner of Next Paige Talent Management and Production, are choosing to move forward despite rising rates.

“It didn’t scare me because I know that we can always refinance down the road,” Thomas says. “It’s still going toward ownership and equity, so for me, that was always the goal.”

POTENTIAL RENOVATIONS

Buying commercial property becomes more complicated if construction loans are involved. Interest rates for this type of financing are typically variable, leaving plenty of opportunity for rates to climb over the duration of the project.

To mitigate the risk of a business being unable to afford costlier future payments, Dangler explains, lenders may ask borrowers to purchase an interest rate cap. While this safety net ensures their rate won’t exceed a set limit, it’s also an additional cost.

Understand and prepare for these added costs before moving forward with a real estate deal. If you’re concerned about stretching your finances too thin, consider looking at buildings that don’t require major renovations, or scale back the scope of the project to only the essentials.

YOUR BUSINESS’S GROWTH STAGE

Typically, more mature businesses have capital and a strong understanding of their growth trajectory. These factors, plus time in business and more established credit, make for a more appealing loan application — and likely a better interest rate.

On the other hand, startup businesses may want to consider leasing before buying right away, suggests Max Grover, president-elect of Commercial Alliance of Realtors West Michigan. As opposed to more established businesses, he says, some startups might see better returns putting their cash toward inventory, equipment, hiring or marketing. Additionally, leasing gives them more flexibility to move locations if they grow.

EXPERT ADVICE

Connecting with a commercial real estate agent or broker who specializes in a particular type of property can help buyers weigh their options.

“It helps to have your own representation so that your interests are pursued,” says Barbi Reuter, CEO, chairman and designated broker of Cushman & Wakefield ‘ PICOR, a commercial real estate firm. “You want to have the expertise to move at the right time.”

In particular, they can help small-business owners narrow down their options, compare buy-versus-lease situations, run calculations and navigate market changes, she adds. They can also look into commercial zoning laws that determine which types of businesses can occupy the property and how it can be used.

YOUR MARKET

Factor in the market conditions for your particular industry and geographic region before committing to a space. Property demand may vary from sector to sector, which dictates how much competition you’ll face and, subsequently, how much negotiating power you’ll have.

Depending on your business type, Reuter suggests finding out where your customer base, suppliers or workforce are located, too.

 “You really have to be super focused on what the dynamics are in your … geographic market and the market in which you sell or trade or operate your business,” Reuter says.

Data on where people are moving to and from, as well as industry reports on how other businesses in your sector are faring, can provide more insight.

This article was provided to The Associated Press by the personal finance website NerdWallet. Hillary Crawford is a writer at NerdWallet.

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Blackstone To Limit Withdrawals From $125 Billion Real Estate Fund

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Topline

Blackstone will limit investor withdrawals from its $125 billion real estate investment fund following a spike in redemption requests, according to the New York-based firm, following an announcement that it will sell its stake in two Las Vegas properties.

Key Facts

Only 0.3% of the fund’s net assets will be available for redemption in December, according to a notice sent to investors Thursday, following a surge in requests in November and October.

In October, Blackstone received $1.8 billion in redemption requests—2.7% of the net asset value—and has already received requests in November and December exceeding its quarterly limit, according to the Financial Times.

Only 43% of redemption requests from investors were fulfilled in November, totaling $1.3 billion in assets.

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Following the announcement, shares at the company fell by as much as 10%.

Blackstone will receive $1.27 billion in cash—generating about $730 million for shareholders—from Vici Properties Inc. for its 49.9% stake in the MGM Grand Las Vegas and the Mandalay Bay, two properties valued at $5.5 billion total, according to a release Thursday.

Crucial Quote

“Our business is built on performance, not fund flows, and performance is rock solid,” a Blackstone spokesperson told the Financial Times, adding the company will continue to focus on rental housing opportunities.

Big Number

$69 billion. That’s the estimated value of Blackstone’s assets across logistics facilities, apartment buildings, casinos and medical office parks. Forbes estimates the real estate firm totaling $15.5 billion in revenue through 2022.

Key Background

The Blackstone Real Estate Income Trust rose in the real estate industry with its inception in 2017, according to Bloomberg, as it quickly acquired apartments, suburban homes and dorms during a period of low interest rates. Investors have become increasingly more cautious about accumulating money in assets that are hard to trade and value while Blackstone continues to place more limits on access to its funding. Because of the two Las Vegas property sales, in addition to the earlier $5.6 billion sale of The Cosmopolitan, the firm now has access to more liquid assets, potentially allowing it to redeem more requests in the near future.

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How Sellers Should Approach The Current Vancouver Real Estate Market

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We often hear “buyer beware,” but when it comes to the up-and-down real estate market, sellers would be wise to do the same — but not too much.

Is this a good time to sell? Should I even be thinking about selling? These are questions people often have difficulty answering with confidence. But Kevin O’Toole, Vancouver-based Managing Broker at Sotheby’s International Realty Canada, sees the solutions simply.

“If you’re selling out of fear [of a market downturn], that’s not a good play,” O’Toole says. “Take a breath. Talk to your financial advisors. Talk to your realtor.”

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O’Toole — who has 15 years of experiencing in the Vancouver real estate market — says if you want to sell because you need more space, or you want to downsize, or you’re being transferred for work and need to move, then go ahead and do it, because there is a decent chance you’ll be dealing with the same market influences in the future that you’re worried about now.

When O’Toole is faced with a client who has this kind of conundrum, he says he always makes a genuine effort to listen. He asks them personal questions, such as “What do you want to achieve?” and “What are your concerns?” or “What do you think would be a better investment?”

Once clients answer, O’Toole says he will often say “tell me more.” He jokingly says it makes him feel like a psychologist, but also says that he genuinely views himself — and other realtors — not as salespeople, but as consultants. And it’s times like those we’re in today when, he says, realtors provide the most value. “Realtors deliver value when there is uncertainty,” he says.

Realtors are not biased towards buying or selling, he adds. So if after the heart-to-heart, an agent feels like selling would indeed help you achieve your goals, they’ll tell you. And if they think it’s in your best interest not to, they’ll probably tell you that as well.

Once you’ve reached the point where you’ve decided to sell, O’Toole says it’s important to again work with your realtor to set a reasonable asking price. He says in the past month or so, he’s starting to see both sellers and buyers are getting a better idea of where the market is after a series of interest rate increases, and are often coming together to work out a deal.

“For a while, sellers wanted the price that they saw in the early-spring, but are now more amenable to prices for buyers,” he says.

Looking forward, he recognizes there are a few unknowns that could potentially impact the market. Premier David Eby recently announced changes to the Province’s Strata Property Act that would allow stratas to be rented out in all strata buildings. O’Toole says that could impact the market because it could open up another possible solution for those who are selling primarily due to financial concerns.

“There can be a ton of valid, and right, reasons to sell,” O’Toole says. “But selling out of fear is one of the wrong ones.”


This article was produced in partnership with STOREYS Custom Studio.

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STOREYS Custom Studio

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