Chicago Business, Real Estate & Commercial Law Blog

NAR report predicts falling CRE vacancy rates in all sectors

Demand for office space in Illinois and around the country is expected to remain high for the foreseeable future according to the latest commercial real estate forecast from the National Association of Realtors. The trade group says that office vacancy rates in the United States will fall to 11.9 percent in the year ahead, and the report also suggests that the competition for available space will cause vacancy rates to decline in the industrial, retail and multifamily sectors.

Experts say that this robust demand is being fueled by an economy that continues to post impressive job creation and growth figures. However, investors and developers are beginning to move away from larger and more established markets. According to the NAR report, commercial property sales in large cities fell by 5 percent during the second quarter while the number of transactions completed in smaller markets increased by 4 percent.

Retirement planning with a small business

Many small business owners in Illinois take a great deal of pride in the companies they nurture and develop. In fact, a small business may represent its owner's most valuable investment. Unfortunately, poor planning presents significant problems for many owners as they reach retirement age.

There are two major concerns that small business owners often overlook when planning for retirement. The first is whether their business can be sold, and the second is putting a succession plan into place. Failure to address these issues before retirement becomes a consideration can create significant stress and possible financial losses when an owner wants to stop working.

Tips on purchasing a rural home

Illinois residents who are interested in purchasing a rural home may be unaware that doing so can be very different from purchasing a home in an urban area. One thing buyers should be aware of is that even rural areas may come with some restrictions. For example, there may be a minimum size for the home or restrictions regarding whether a mobile home can be placed on the land. People should also make sure they have an easement to build a driveway if necessary.

Identifying property lines on large stretches of land may be difficult. Surveys may be decades old, and new surveys can be costly. Unlike homes within city limits, there may not be fences or other boundaries to mark borders.

Older buyers and home ownership

Older individuals in Illinois should not let their age become a hindrance to purchasing a home. In fact, the 2017 National Association of Realtors Report shows that nearly 25 percent of first-time buyers were older than 52. In 2016, 30 percent of the homes that were sold were purchased by individuals aged 52 to 70. Seniors between the ages of 71 and 91 accounted for 8 percent of all home purchases for that year.

While first-time home ownership is obviously possible for older individuals, it is not something that should be taken lightly. There are multiple factors to consider.

Real estate market not slowing down for summer

Illinois residents may notice that the commercial real estate market is generally slower in August when compared to the rest of the year. This is often because brokers are out of the office and on vacation or otherwise taking it easy. However, this summer has seen no such slowdown. One deal that had been in the works since May involving 106,000 square feet at 1633 Broadway was closed during the month of August.

A representative from Colliers International said that such a deal may not have closed before Labor Day in past years. However, he said that technology has made it easier to close deals faster than before. The increase in commercial real estate activity in August reverses a trend that saw a sluggish start to the year in many cities across the country. The earlier slowdown has been attributed in part to the election of Donald Trump.

Why home buyers have fewer options

Illinois residents may be having trouble finding a home that fits their needs and budget. This is because the number of available homes is at its lowest point in the past 20 years according to a survey from Realtor.com. In June 2017, there were 4.3 months worth of homes on the market according to the National Association of Realtors. This means that it would take that long for all homes to sell out if nothing else became available for sale.

Normally, the supply wouldn't run out for six months, and the available supply was 4.6 months at this time last year. The Realtor.com survey was conducted in July and gathered data by talking to 1,054 randomly selected homeowners. Of the baby boomers who responded to the survey, 85 percent said that they had no plans to move. This is consistent with historical trends that see older homeowners move less frequently.

Lending downturn in commercial real estate, other sectors

Though banks are not the only source, the vast majority of real estate transactions in Illinois and across the country rely on third-party funding. A signal from banks seen in a Federal Reserve survey of loan officers could portend reduced access to bank funding for those purchasing or refinancing commercial real estate. The commercial and residential sectors have been affected so far, but business and mortgage lending has been given a pass.

The cause of the tighter lending standards may in part be due to statements and reports issued by policymakers at the Federal Reserve. There is clearly a desire to end the flood of lending seen during the years of an essentially zero percent Fed rate, but the Fed has held off on raising the funds rate too quickly. The central bank is possibly hoping to target specific sectors without dampening other types of asset-based lending. This is suggested by Fed warnings about price increases in the commercial real estate market and an emphasis on the sector in the Fed's annual reports.

Tips for a smooth real estate closing

People in Illinois who are buying a home might wonder what the closing process will be like. Several professionals will attend the closing. Among these professionals may be the real estate agent, a closing attorney, the lender and the title closer. This is generally a smooth process although there are things that can go wrong.

According to the TILA-RESPA Integrated Disclosure Rule, which has been in place since 2015, homeowners have three days to look over paperwork. Making a change to the terms at this point starts another three-day waiting period. While the TRID can protect the homeowner, it can also be disrupted because a delay can have a domino effect if additional transactions are contingent upon the completion of this one. Furthermore, a delay could cause issues with movers and other logistical problems.

Improving the odds of getting a real estate loan

Illinois residents may assume that they qualify for a commercial real estate loan because of their profession or a variety of other reasons. However, a lender may view a potential borrower much differently than the borrow sees him or herself. The first step in determining if a borrower qualifies for a loan is a credit check. If there are late payments, a recent bankruptcy or tax issues, a loan application could be denied right away.

It is also important that a borrower has the money to pay both upfront and ongoing costs related to a property. It is also a good idea to show that paying off a loan can produce revenue. Borrowers may also help themselves out by showing that the property has produced revenue in the past. Furthermore, borrowers themselves should be able to show that they have owned commercial properties for at least three years and have been profitable doing so in at least two.

NAR reports 49 percent jump in home purchases by foreigners

Although home sellers in the heartland of Illinois may not have noticed an influx of foreign buyers, they have been buying in large volumes in some states. The National Association of Realtors reported that from April 2016 to March 2017, foreigners spent $153 billion on U.S. residential real estate. This represented a 49 percent surge over the previous 12-month period.

Chinese people accounted for the majority of buyers as they had in the preceding three years. The average price of the homes that they bought fell during the current reporting period from $937,000 to $782,000. Switching their interest to more affordable markets could be the source of the price drop, but stricter regulations in China meant to prevent capital departure could be contributing as well.

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