Concerned about real estate investing? You’re not alone. There’s heavy criticism circling commercial real estate these days – headline after headline advising not to invest. But it’s blanket narratives like those that are short-sighted and damaging. The reality is there are some incredible investment opportunities out there for both lenders and borrowers. It’s just a matter of knowing which to go after and which to avoid.
We’re here to help guide the way.
The Properties of Concern
As the leading CUSO in commercial real estate, we’re accustomed to addressing others’ concerns firsthand, especially in this climate.
So, let’s start with the commercial real estate properties in which we do share the press’ concern.
The first is large office spaces. COVID and remote work had an undeniable effect on these properties – including their occupancies, vacancies and sub-leases – that isn’t expected to change any time soon.
There’s also legitimate negativity around traditional retail properties, such as department stores and boutiques. COVID lockdowns and the e-commerce boom crippled brick-and-mortar shops, as people shopped from their couches.
Putting capital in these two property types is not advised.
Recommended CRE Investments
Now let’s talk about which properties our CRE experts see as well-positioned investments. When servicing loans for our credit union partners, we recommend thoughtfully and strategically embracing these property types:
- Medical offices (they can weather economic change and tend to have a solid rent roll)
- Industrial (warehouses and storage are seeing a surge)
- Multi-family (depending on the market)
- Cannabis (it can provide 3-5% returns over prime)
- Service-related retail (salons and massage therapists, for example, can be bright spots in retail)
An Opportunity for Credit Unions
The playing field in CRE has rapidly changed, which naturally causes uncertainty and friction. Traditional banks are retreating from CRE. Sellers are faced with higher CAP rates resulting in lower valuations, and borrowers must come up with more equity and pay higher interest rates.
In turn, this gives credit unions the ability to expand their service offering, increase liquidity, assist more members and diversify their portfolio. There are a lot of wins to go around.
“The current market allows our credit union partners to be very selective,” says Marvin Vuicich, our Portfolio Retention Officer. “They can choose the best and strongest deals and command premium pricing due to lack of lender participation. It also allows them to diversify their portfolio not only by loan type but also genre.”
How Extensia Financial Can Help
Uniquely, Extensia is a full-service provider when partnering with credit unions to fund CRE loans. We support CUs every step of the way, from origination to closing to serving the loans. Our attention to detail and white-glove service separate us from other providers out there – and safeguards our partners.
“CRE is our bread and butter,” Marvin says. “We’re very good at it – so good that we haven’t had a charge-off in our real estate portfolio since 2014.”
We also manage about $550M for our CU clients, all without any past-due loans since November 2022.
One of the reasons we’re so successful is because of our conservative underwriting. We ultimately underwrite to protect ourselves, our credit union partners and their members. For example, when underwriting a cannabis loan, we use 50-70% of the non-cannabis value (based on what a traditional tenant would pay).
Extensia can also advise credit unions as to which loan is the best fit for them and their members. Right now, there’s significant benefits to SBA 7A mortgages, for example. SBA loans can be overwhelming to credit unions given their intricacies, but we manage every step for CU clients according to SBA standard operating procedures.
We also help CUs sell the loan’s SBA-guaranteed portion and oftentimes make a 10% or more premium on the sale. In fact, that yield could be so good the CU decides to keep the loan on their books. Plus, CUs only have 25% of the overall risk, so it’s a huge ROE and ROA.
Overall, there are so many ways Extensia Financial can help protect and support credit unions so they can emerge from this economy stronger (and even financially wiser) than they were before.
“As long as there’s uncertainty in the economy, CRE presents opportunity,” advises Marvin. “But you have to be selective and pick the strongest deals, and you have to maintain your underwriting integrity during downtimes.”
Extensia is here to help credit unions across the country do just that. How can we help you strategically and carefully expand into CRE and leverage its potential in today’s climate?
About Extensia Financial
Established in 1998 and headquartered in Simi Valley, CA, Extensia Financial is one of the most seasoned credit union service organizations (CUSO) focused on commercial real estate lending. For decades, we have partnered with credit unions across the country to offer competitive and collaborative CRE loans. We also uniquely support and guide our partners through the entire lifecycle of our loans. Extensia Financial is a proud member of the AVANA Family of Companies.
Contact us today to learn how Extensia Financial can help you navigate the CRE landscape.