Commercial RE Landlords Get Relief From Franchising
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Given the current economic downturn and government attempts to decrease employment at any cost, it appears another private industry group, besides franchisors, will be the beneficiaries of the current SBA spending spree. As dark clouds hang over real estate valuations and whispers of huge write downs in the commercial RE market nearing for financial institutions, commercial real estate landlords are reaping the rewards of government lending. ""There is no question about it: Coming out of the recession, people are doing a lot more franchise deals," said Chuck Lanyard, president of Paramus-based Goldstein Group, which has brokered more than a dozen such deals since January."</p>
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As the SBA increased their lending to the franchise industry to 30% of the marketplace, up from 15% just a short time ago, there has been a significant upswing in franchise deals. Add on to that the SBA's decreased lending standards allowing for loan approvals for deals showing even less positive cash flow than before, it will be interesting to see how this will all play out. </p>
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"Experts say the recent spike in activity involving franchises marks an upswing for the battered commercial real estate market and a return to the smaller tenants of the pre-boom era. It also brings welcome relief to landlords, who are all too eager to make heavy concessions in order to close deals." - <a href="http://www.nj.com/business/index.ssf/2010/06/franchises_a_welcome_econo…; target="_blank">NJ.com</a></p>
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It appears this may be a longer term trend. Landlords are even subdividing locations that formerly held big box store tenants to accomodate the needs of these aspiring entrepreneurs.</p>
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""Do I see big boxes coming back next year? Yeah, I do. But I don’t see the big boxes that are out there right now aggressively expanding," said Jason Pierson, an East Brunswick-based broker at CB Richard Ellis. "Cash is king right now.""</p>
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Especially, taxpayer cash.</p>
How do you spell relief? F-R-A-N-C-H-I-S-E-E
I'm not new to this site but have never written in before. I've read alot of the stories here as well as the comments and its interesting how some of these pieces and what is going on in the economy fit together.
The government needs to "create" jobs and claims that "small" business is the engine for growth (I could very easily argue that point but that is for another discussion). Small business needs capital but the banks refuse to lend. If given the right incentive the banks will open the spigots - but it will be easier if there is a "standardized template" to help move the money out quicker. These businesses need a place to hang a shingle. Commercial property owners need tenants. When the market hit the skids and franchisees were dropping like flies (according to SBA default rates) commercial property owners lost tenants and were having difficulty with cash flow. Numerous reports abound about commercial property loans having been extended by banks hoping that time will help make commercial prop. owners whole. A friend of mine with a national Com.Prop. investor told me that coming this fall is an avalanche of comm. props. that will be going into default because the banks are refusing to extend the loans any more. So the banks will be sitting on non-gov't gtd comm. prop loans that will require write downs and thus, the banks may need additional bailout money.
So how does this all fit? The gov't gets the SBA to gtee 90% loans (banks wouldn't write them with 50-70% gtees because even with that they were apparently losing money so the gtee had to be increased). Franchise loan consultants "help sell" the loans by rigging them. The banks approve them with gov't gtees thereby creating a new "tenant" and, eureka, more employment (yeah, at minimum wage). The comm prop. owner gets additional cash flow. The banks don't have to write down as many comm. prop. loans. The gov't doesn't have to come in with another bailout.
BUT, they just did, didn't they? Might it be that the bailout was just out of another agency? Could there be enough new franchisees out there (according to this article) to help stave off a slew of comm. property bankruptcies (not all of them) and in turn helping the banks (and unemployment figures)? So the banks stop the comm. prop. bleeding by lending gov't gtd money (so if the loan fails it's no skin off the banks balancesheet) to potential tenants of banks' comm. prop borrowers providing the CP borrowers with fresh cash flow and the banks with borrowers that can now make their loan payments.