This COMMERCIAL GLOSSARY OF TERMS will familiarize you with common commercial real estate terminology.
SAMPLE FORMS commonly used in commercial real estate transactions. From the AIR Commercial Real Estate Association.
By Mike Moloney, President, Commercial Real Estate Institute - Reprinted With Permission
In general, commercial real estate "follows" residential. First, homes get built, THEN you get a shopping center.
But, financing commercial real estate and investing in it is a completely different animal.
Second, commercial financing is quite different from residential. For example, with the exception of some 'user-occupant" loans, such as SBA, the down payments normally range from 30% to 45%. Commercial lenders on the whole are quite conservative. They is no mass "secondary market" for commercial loans which "trusts" the loan originators to check everything. Due diligence with commercial loans is extremely lengthy, complex, time consuming, and expensive. The likelihood of "bad" loans being made is very remote.
Third, In addition, government regulators (federal and state) tightened up the underwriting for commercial loans.
Fourth, small investors were buying houses on speculation. Almost nobody buys a commercial property expecting to "flip" it in less than 5 years. Thus, the market is not susceptible to volatility, like the residential market where any middle class person with decent credit could by another home with less than 10% down.
Fifth, if it won't cash flow with 30% down, no one will buy a commercial property (unless their own business will use it - "user-occupant" loan.) Even "user occupant" loans are not speculative. Most business owners don't buy a building for their company until the company is generating so much profit that they need the tax shelter of owning. Tax shelter is the #1
reason why anyone buys a commercial property - and that means that they have excess discretionary income.
Sixth, commercial real estate reflects the underlying economy.
Seventh, real estate always benefits when the "securities" market stumbles. Investors then look for a more stable place to invest their money: real estate.
Eighth, the fundamental of residential real estate are still strong. People who want to work can find well paying jobs. Young people still want to have kids and a home in which to raise them. Jobs and population are still growing.
In short, commercial real estate is strong and stable. For now. It will become risky only if "easy money" gets into financing commercial property, and unseasoned speculative investors start over leveraging it.