Thursday, May 20, 2010

Looking Hard At How California Foreclosures Could Affect The Rate Of Commercial Property Investment

By Brian Jones

California foreclosures and how they might affect California commercial properties should really be studied by anybody who is either sticking with Golden State real estate or is considering jumping into the California markets. Some may question whether it's a good idea to stay in such a down market but it's a fact that a savvy investor can make money no matter characteristic of the market in question.

Currently, the Golden State has seen a 15% increase in the rate of CA foreclosures and it may not be the best of times to jump into the California market, especially if it hasn't hit bottom. Many experts, though, think that it might have, though many others also think these foreclosure rates are portents of issues to come with the commercial real estate markets that an investor should learn about.

In the commercial property markets, it might be that holders of notes on all those properties have been reluctant so far to begin foreclosing on them, which is one reason why the rate of commercial CA foreclosures has remained lower than the residential rate. They have a great many residential properties to deal with and are trying to get rid of those properties before calling in their commercial notes, perhaps.

Loss, as a term of art, in real estate means different things to different lenders. However, the fact is many lenders would rather deal with some loss rather than a complete loss which is something that may confront them when it comes to commercial properties if the situation remains as it is. Financially-strong investors might be able to get into the current California market and do something with it, truth be told.

Investors of these kinds are sometimes known pejoratively as "vultures" but that's not exactly a fair description of either their value or what they do. Any market will require investors willing to come in and take distressed goods, services or properties and they're often needed as much as so-called prime investors, especially when a market depends on investment to bounce back from a down cycle.

There is, at present, a great deal of debate as to whether the present time is the prime moment to jump into commercial properties or any properties in the California market because some believe that the rate of CA foreclosures might begin to climb again after a short stabilizing. This is known as a double-dip, which is characterized by a decline in rates and then a subsequent increase in them before finally declining for good.

What this basically means for most investors is that they should keep a close eye on the market and look at whether or not it has truly bottomed out and has now begun to climb back up to more stable levels. Investors, therefore, will need to either execute a "buy and hold" strategy or wait out the market until the predicted second dip occurs before beginning a real upward climb.

For an investor who has a lot of guts and a high tolerance for risk when it comes to dealing with CA foreclosures and what can be made of them in the commercial real estate markets, it could be a favorable environment. That's because there's a lot of commercial real estate chasing not a lot of renters or buyers. Supply and demand is on the side of the buyer, it would seem.

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