With the limited financing options available today, owners of some single-tenant properties are being painted into a difficult corner and could be forced to make some tough decisions in the months ahead. Do they negotiate with their bank to secure new loans or loan extensions? Do they sell at market rates that may result in little or no profit or even a loss on the property? Or, do they wait things out -- hoping things get better?

Financing is the number one issue today. For the owners of smaller properties, options in these difficult times are greater especially since capital is still available for these deals. However, for the larger property owners where potential buyers likely require financing, their choices are much more limited.

I recently spoke with Jim Gibson, senior associate in our Houston Office, who related, "In the single-tenant world, a lot of these sellers are having to make hard decisions: do I lose money today, do I try to buy myself some time; what is the world going to look like two years from now when my note is called? Sellers are just hard pressed to make some really tough decisions"

Many of the transactions taking place today at our firm are below $3 million and are either all-cash or financed by local banks. Two years ago, our average net lease deal size was about $10 million. In today's tight lending environment, the larger transactions are requiring sellers, buyers, brokers and lenders alike to explore creative financing avenues such as seller financing or joint venture partnerships to get the deal to the closing table. This creativity will likely be required for at least the short term —12 to 24 months—while lending standards remain tight. There are not any data points to suggest that in the short term financing will get any better, it may get worse.

Most commercial real estate professionals and buyers are in agreement that cap rates will continue to rise. As sellers are facing this reality, we have seen those motivated are beginning to exercise some flexibility and creativity in order to close their deals. We are currently involved in a portfolio deal of three single-tenant office properties nearly 81,000 square feet that are each occupied by the same tenant. The deal working on the table right now is where the buyer will create three different limited partnerships to purchase each of the buildings and the seller will provide 10% seller financing, which has allowed the buyer to obtain permanent financing on the rest. One of the advantages of the deal structure with three limited partnerships for each building is the mitigation of risk to some investors.

Craig Tomlinson, a director in our Tulsa Office shares another deal that exemplifies this type of creativity. The property involved is an office building in Reno, NV that was net leased to a name tenant for 10 years with escalations. A buyer was found for the property, who after signing a contract and obtaining control of the parcel, raised the equity and closed on the deal.

While a number of mortgage banking firms were retained to find debt for the property on behalf of the buyer, none were found that would fit the buyer's investment model. In the end, the original construction lender provided viable financing. The seller achieved a sales price which was about 50 basis points higher than current sales comps. The higher price was gained primarily due to the seller's advocacy for a restructured loan to the benefit of his buyer.

"The owner flexed to the extent that he went into contract knowing the buyer had to raise equity," Tomlinson said. "That closing condition would not have been acceptable as recently as twelve months ago. Twelve months ago, the seller would have said 'show me the money.'"

Inventory of properties on the market for sale are increasing and we expect that trend to continue for the remainder of this year and perhaps all of next year, With financing availability tight and lending requirements stringent, thinking outside the box and employing new and creative techniques may be the order of the day for buyers and sellers of real estate in 2009 and 2010.