Posted on Wednesday, December 8, 2010
Chairwomen Landrieu, Ranking Member Snowe, and members of the Senate Committee on Small Business and Entrepreneurship, thank you for inviting me to testify today.
My name is Dan Sight, and I have been a REALTOR® for 25 years. I am Vice President and Broker for Reece Commercial in Kansas City, Missouri and currently serve as the 2011 Chair of the Commercial Committee for the National Association of REALTORS®.
I am here today to testify on behalf of the more than 1.1 million REALTORS®, who are engaged in all aspects of the real estate transaction – many of whom work for or own a small business that has fewer than 5 salaried employees. Additionally, commercial REALTORS® are predominantly small business-oriented as evidenced by the fact that over 54 percent of all transactions are valued at $500,000 or less.
Small Business & CRE Lending
It is no secret that having a sound and well-functioning small business sector is critical to our nation’s growth and recovery. In fact, small businesses have accounted for roughly one-third of job growth in the previous two economic expansions. However, 45 percent of the net job losses in the current recession have been from the small business community. November 17, 2010 – U.S. Senate Hearing Committee on Small Business and Entrepreneurship: "Small Business Access to Capital: Challenges Presented by Commercial Real Estate” Testimony of Daniel E. Sight, CCIM and 2011 NAR Commercial Committee Chair
Significant drops in lending to small businesses continue to adversely affect our nation’s economic recovery. This reduction in credit to small businesses has been exacerbated by a poorly performing commercial real estate industry. Specifically, high vacancy rates along with negative rents have forced commercial real estate prices to plummet 45 percent from their peak in 2007. Moreover, sales of commercial properties are down 80 percent from 2007.
Furthermore, 43 percent of commercial REALTORS® have not completed a single sales transaction this year. According to our commercial membership, lack of available real estate financing continues to be the number one reason for such dismal commercial real estate activity. This sluggish activity has triggered a significant decline in commercial real estate prices, which have forced many regional and community banks to increase capital reserves and hoard capital – especially ones with high commercial real estate loan exposure. Consequently, these financial institutions also account for nearly 40 percent of all small business loans.
Many economists and industry analysts agree that a vicious “negative feedback loop” has been created, where banks must retain capital due to declining values of commercial real estate. This forces banks to reduce all forms of lending. Banks provide less capital to small businesses, causing them to lay off their employees or even fail – leading to less demand for commercial real estate, which only reinforces the viscous negative November 17, 2010 – U.S. Senate Hearing Committee on Small Business and Entrepreneurship: "Small Business Access to Capital: Challenges Presented by Commercial Real Estate” Testimony of Daniel E. Sight, CCIM and 2011 NAR Commercial Committee Chair
feedback cycle by causing prices to decline, and devaluing the loans, banks hold on these properties. More pressure on commercial real estate prices leads to additional write-downs by banks and result in further contraction of small business loans, threatening economic recovery even further.
While our nation’s economic recovery is facing uncertain times, it is clear that the problems plaguing commercial real estate lending must first be addressed in order to fix access to capital within the small business sector, which will strengthen our nation’s economy.
The National Association of REALTORS® thanks the Subcommittee for this chance to provide input, and we look forward to working with you to find solutions to stabilize and ensure recovery of the commercial real estate and small business markets.