Buying commercial property now – good idea or not?

With low rates and a saturated market, now is a good time to buy a home for your family. But is it a good time to buy a home for your practice?

The answer is yes, according to academic and professional sources.

Mark Levine, PhD, is a professor at the University of Denver, and is director of the Burns School of Real Estate and Construction Management at the university’s Daniels College of Business. He says that given the right opportunity, now could be a great time to purchase commercial real estate for your practice.

“Obviously, the key is the right property for the right terms,” Levine said. “But, speaking on a general basis, the sellers seem to be much more negotiable today as compared with six months or a year ago.”

With banks failing left and right and the foreclosure crisis still in full force, in general banks may be skittish about lending. But, says Levine, veterinarians who meet certain criteria should be able to secure a loan.

“It is difficult for everyone at this time,” he said. “But, if the loan-to-value ratio is not high, such as putting in at least 35 percent of the price as equity, with good credit and earning history, one should not have too much trouble obtaining a loan.”

Others are even more optimistic. Keith Merklin is Director of Commercial Real Estate Financing for Matsco, a company that specializes in loans for health care professionals. (Disclosure: Matsco is officially endorsed by AAHA.) Merklin said that now is a great time to buy your practice, or even buy land and construct your own building from scratch. He said with a Small Business Administration (SBA) loan, a veterinarian can usually put only 10 percent down and still secure financing. This is due in part to veterinarians’ good “performance” record in terms of paying back loans and other financial obligations, he said.

“There is a credit crunch out there, but it does not exist with us,” Merklin said. “We believe in the industry, we know that the veterinary industry is one of the top 10 performing industries in the U.S.”

According to Merklin, the main reasons to buy your own practice are the current low property values, preferential tax treatment (deductible mortgage interest and other write-offs), long-term appreciation of the property, retirement funding (i.e. selling your practice while keeping and renting out the building), and historically low rates.  

Levine said that commercial mortgage rates vary across the country, but are at about 7 percent for commercial borrowers with good credit and who put down a larger down payment. Market trends indicate that “sellers and landlords are more flexible,” Levine said. However, “lenders are more cautious and underwriting is more selective as to requirements.”

While there are many variables that could affect the market in the next year, sales are not expected to pick up much, Levine said. But the credit market could loosen up soon.

“That is what is expected, if the bailout provisions generate action by lenders that see themselves as reasonably protected,” Levine said.

Meanwhile, Merklin said if you are ready to buy, now is a good time to pounce on the opportunity.

“Values are down across the country 10-15 percent, very similar to the housing market,” Merklin said. “Most Wall Street analysts say the economy will look to rebound mid- to late next year, so you could be catching these values at a good time.”