Eastern Union on state of the commercial market

Yet challenges continue

“On the more challenging side we’re finding that lenders are having a very, very hard time putting out term sheets and committing to deals,” he said. “From talking to a lot of lenders, the crux of the issue isn’t that they’re uncomfortable with the real estate – they know what they want to lend on. The biggest challenge that lenders are telling me they’re facing right now is they simply just don’t know what their cost of funds is going to be going forward – certainly in the short term, and to a certain degree in the long term. That makes it very, very hard for them to price deals. If they price it too high, then the deals don’t work; if they price too low then they’re going to lose money.”

He speaks from personal experience at Eastern Union, Bergman noted. “By us placing the deals, we’re getting them done – but it’s a lot more work that it’s been historically. The simple example I give to people in the office is you’re selling apples and your wholesaler tells you ‘I’ll let you know what I’ll charge you for the apples after you sell them’. That’s the simple explanation, but that’s basically what’s going on.”

It’s not for lack of capital either: “There is a lot of capital, a lot of liquidity in the market,” Bergman said. “It’s trying to get those deals structured that’s been the biggest challenge.’’

Construction costs yield more good news

Another promising development has emerged in the area of construction expenses, he added.

“Construction cost have come down a little bit,” Bergman said. “We are seeing a lot of construction projects. Material costs have come down a little bit. Even total budget items have come down a little bit. It’s still expensive, but that has come down.”