There’s no better time than right now to invest in Denver commercial real estate. So what’s making the market grow so rapidly? There are many factors at work creating the perfect storm for a strong commercial real estate market. Denver Ranks No. 6 on Forbes list of “Fastest-Growing Cities”. It was also ranked “Fastest Growing Economy” by Business Insider. In addition to all the sterling accolades, vacancy rates for commercial real estate being at an all time low is increasing competition for space, driving up lease rates and heating up the investment market throughout the Boulder Valley and Northern Colorado.
It’s also important to note that projections show that the Denver apartment market will perform well this year, too, as demand for rentals remains strong and prices to buy go up. The influx of people, especially millennials, and new businesses will continue to support growth. All this good news helps fuel Denver’s commercial real estate market, with more developers seeking to build in a city where people are flocking to live and work and Denver as a whole is benefiting from strong office demand.
Challenges for Taking Advantage of the Market
Although all seems well on the Denver for commercial real estate front, a couple of challenges still remain:
Challenge 1: Pricing – Prices are high as they reflect the market value of these businesses with office, industrial and retail buildings having higher occupancies. If you’re thinking about renting an office space, prices have increased 5.8 percent in the last year. Lease rates are also steadily increasing with the vacancy rate at less than 5 percent. On average, sale asking prices for commercial real estate have increased by 10.8%. Some of this increase can be attributed to the influx of construction of new commercial properties.
Challenge 2: Increased interest means multiple bids and sales at or above asking price – Because the market is so hot, there is a lot of competition. It’s not uncommon for there to be multiple people or corporations out bidding each other for their piece of the commercial real estate pie. That means the already inflated asking prices of these pieces of property will be even higher, making it difficult for the “little guy” to compete.
Important Steps to Get Approved for Denver Commercial Real Estate Financing
With prices of commercial real estate on the rise, it’s important to think about your financing options. The first step is to be poised to take advantage of the market. It’s imperative that you have all your finances and paperwork in order before you start. Having everything ready from the get-go will save you valuable time and effort and will help the process go quickly and smoothly. Time is of the essence with so many people clambering to close the same deal as you.
The exact paperwork you need to have on hand will vary depending on the type of financing you’re looking to get. However, it’s a good idea to have some of the most used and important documents available such as: current and past personal and business financial statements, personal and business tax records and returns, collateral and documents such as security agreements, guarantee & collateral agreements, pledge agreements, and mortgage statements.
The next step is choosing the right loan type. Here are 3 of the most common loans for buying commercial real estate:
- Traditional real estate loan – This is a commercial real estate mortgage from the bank after referred to a CRE financiary. . These loans are notoriously difficult to get approved for and they take a long time to process. Requirements are typically a personal and business credit score of 680 or above, you have to be in business for 3+ years, and have the ability to, at minimum, a 15% down payment. The term of the loan is between 5-25 years.
- SBA – These loans are backed by the US Small Business Administration (SBA). One great thing about them is their low interest rates. However, just like traditional real estate loans, these also have strict requirements. You will need a credit score of 680 or above, a 20% down payment, and past business management experience to qualify. These loans typically have longer terms, between 20-25 years.
- Asset-based/hard money – These loans are easier to be approved for than traditional and SBA loans. You don’t need a high credit score or large down payments. They are secured by available collateral such as inventory, accounts receivable, equipment, and fixed assets. The amount that can be borrowed is typically between 65%-80% of the assets. It’s important to note that asset-based loans have high interest rates of 12%-27%.
The final step to securing a loan is talking to a lender early. The sooner you sit down and get the ball rolling the sooner you’ll be able to close a deal. In a hot market like Denver, it’s important to move fast.