How the stimulus act will affect the commercial realty market
The Economic Recovery and Reinvestment Act of 2009 signed into law on Feb. 17 will begin to have an impact on many aspects of our economy in the coming months. While this act is not expected by most to solve all our economic woes, there will be an impact on the local economy and our local commercial real estate market.
One of the primary recipients of funding under the act is the Small Business Administration (SBA). The SBA will receive $730 million to support many small business programs, including:
* The reduction or elimination of fees on both the popular 504 and 7(a) loan programs for financing building or business acquisitions. These fees can add tens of thousands of dollars to the cost of these loans. In addition, up to 90 percent of these loans will be guaranteed by the federal government.
* The creation of a Secondary Market Guaranty Authority that will allow for the trading of SBA-guaranteed 504 loans, freeing up additional capital for the banks to lend under these programs.
* The refinancing of current debt, as long as that debt does not exceed 50 percent of the total amount of new financing. This expansion of debt requires that “the proceeds of the indebtedness is used to acquire land, including a building situated thereon, to construct a building thereon, or to purchase equipment.”
On a smaller scale the act also increases funding for the SBA Microloan program, for entrepreneurs looking for up to $35,000, and provides for higher limits on surety bonds to allow small businesses to more effectively compete for many federal and other contracts. A healthy small business community is critical to maintaining stability in our commercial real estate market. The continued closure of businesses has driven the balance of power from landlords to tenants.
In addition to SBA funding, spending on infrastructure and school rehabilitation and repairs will help support local contractors. Computerization of medical records may help local companies in information technology and data storage. Spending on energy projects will help support renewable energy projects or companies. And finally, tax rebates for consumers may help improve consumer spending, which will benefit every local business.
The impact of all of these programs will depend on the appetite of local entrepreneurs to start or grow their businesses during these trying times. Today we are in a tenants’ or buyers’ market. Commercial lease rates and purchase prices are lower today due to a lack of demand. Stimulate demand, and our commercial real estate market will stabilize and begin to restore the balance of power between landlords and tenants.
Of course, any impact to our local commercial real estate market will be contingent on an economic recovery. To the extent all of these actions result in a growing, thriving economy in northern Nevada all will be well again.
Tom R. deJong is an associate in the industrial properties group of Colliers International in Reno. Contact him at 823-9666 or firstname.lastname@example.org.
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