As the economy grows, the money flows - more money predicted for real estate industry as economy improves - Finance

The past five months during 1992 have not been fun for small to medium-sized property owners in New York City. But it has not been a disaster either with clear signs of life. Commercial vacancy rates while high at 19.9 percent per Cushman & Wakefield (New York Times, May 6, 1992) have not gotten worse for last 12 months. Also commercial mortgage rates have remained stable. On April 14, 1992 Chemical Bank dropped it's prime rate .25 percent to 6.25 percent. No other bank followed. So commercial mortgage rates remained in the low 9 percent range with some high quality deals being closed at 8.75 percent. Mortgage money was available at the few selected commercial and savings banks still in the market. Insurance companies and pensions funds have become increasingly active for larger loan requests in excess of $3 million. But that has been little help for the owner of a four-story walk-up with a few stores located in the five boroughs.

Where Are We Going

After arguing with your slow paying tenants, paying increased water/sewer charges, and loosing another tax certiorari hearing, it's hard to believe the economy is improving. But you know what - the economy is improving!l And as the economy improves, the money will come. There are enough positive signs for the general economy to show genuine economic recovery. These signs include a soaring 6.8 percent increase in exports during April (New York, Times, April 7, 1992), four straight months of sales increases for the beleaguered retail industry (New York Times, May 8, 1992), and a 9.6 percent increase in housing starts during February 1992. New York City is also improving as the average pay of Wall Street employees increased 17 percent during 1991 (New York Times, April 1992), the city's budget shows a $455 million surplus to be spent on among other things education and economic development (New York Times, April 23, 1992), sales of furniture and home furnishings showed the greatest increase of New York Retailers (New York Times, May 7, 1992), and the theater district is booming. As you can see,the general economy and even New York City is improving.

How Does This Affect Money?

Even with many banks out of the market, the few remaining are looking to fund. The Federal Reserve has done all it can to help the money market by once again reducing the Federal Funds rate to 3.75 percent from 4 percent on April 8, 1992.

Also the Fed increased its holdings of Treasury securities injecting an additional $79 billion into banks for lending (New York Times, March 22, 1992). The net effect of all this is that commercial mortgage money is available now for your small to medium sized income producing properties. Don't waste your time with even active pension funds and insurance companies unless you seek over $3 million for a conservative loan. A select number of commercial and savings banks are making loans. A large number of new banks will not be coming back to the market as they are working out their portfolio problems. So rates will not decline substantially. Very high quality income producing real estate can be financed at 8.5 percent to 8.75 percent today, with most transactions being financed in the 9 percent to 9.75 percent range. If you have the need to refinance, or if you are considering purchasing a property - do it! Do not wait because the mortgage money is available (if you know where to look), rates are reasonable, and the Federal Reserve is cooperative. What more could you ask for? With the U.S. economy picking up, manufacturers will require financing. The U.S. Treasury continues to run at a deficit, and the Japanese economy is slowing down (New York Times May 8, 1992) making Japan a less reliable source of funds. With the demand for financing increasing from both the manufacturing and government sector combined with a small number of lenders, a real estate investor should look hard for the reasonably priced mortgage money available today.

COPYRIGHT 1992 Hagedorn Publication
COPYRIGHT 2004 Gale Group