Historically low interest rates bring solutions for owner-user buyer

By Alex Pulliam, NAI Maestas & Ward Land and Industrial Advisor

We are officially in the third quarter of 2020 and although uncertainly surrounding the COVID-19 Pandemic has adversely impacted some aspects of the real estate market, the industrial segment has remained resilient with plenty of active buyers still looking to acquire property.

A noteworthy trend we are seeing in the market is that more owner-users are looking to purchase property than lease. This pattern mainly is attributable to historically low-interest rates being offered to owner-user buyers by lenders. Owner-user buyers who purchase property with the intent to occupy at least 51% of the property can benefit from SBA (Small Business Administration) financing and are often considered strong banking candidates by conventional lenders. Having these options in financing is prompting many industrial users to explore lending scenarios and many are discovering they are more advantageous than leasing.

For example, a 6,000 square foot industrial building in Albuquerque could be listed at a sale price of $600,000. Using SBA lending terms of a 10% down payment, 3.75% interest rate, and a 25 year amortization- a monthly outlay including taxes & insurance could work out to $3,550 as shown below:

That same property could lease for $7.00/square foot as part of a NNN Lease structure. And although your initial costs to get into the space are much lower, the monthly payment is sharply more at $4,274. Below is a scenario detailing a $7.00/square foot + $1.55/square foot in NNN’s on that same 6,000 square foot property:

When you compare a monthly outlay of $3,550 to $4,274 you notice a blunt difference of $723 per month. That is a difference of $8,676 per year that could be reinvested into a company. These scenarios demonstrate that the economics of buying can be more favorable than leasing if a user has cash upfront to make a down payment.

This situation may not always be relevant but at this snapshot in time, we are witnessing an influx of buyers thanks to a favorable lending environment. Now, the hard part is coming up with suitable properties in a market starving for supply as we are faced with a historical vacancy rate of 2.78%.

In addition to Alex's industrial insights, she is known for problem-solving with the right people to get the job done. She is committed to her goal of meeting deadlines and prioritizing her daily activities to exceed her client’s expectations.

For more information on other industrial property opportunities, contact Alex Pulliam.