Metropolitan Statistical Areas, or MSAs, are U.S. government designations for specific urban areas. MSAs are defined by the U.S. Office of Management and Budget (OMB). Currently, there are 383 Metropolitan Statistical Areas in the United States and 7 in Puerto Rico. An MSA generally groups several cities and counties that are closely interconnected, which makes it significantly easier for government agencies and businesses to compile statistics about a specific area. Most MSAs are based around one large city, such as Miami, New York City, or Boston, and incorporate nearby cities and counties into one, combined MSA. In order to qualify as an MSA, an area must have one city with a population of at least 50,000 people.

Investing in an MSA can offer several benefits to commercial real estate borrowers. Generally, it is much easier to obtain financing for properties located in the core of a major MSA. In addition, borrowers attempting to secure financing for properties located in major Metropolitan Statistical Areas are generally offered better loan terms, including higher Loan-to-Value (LTV) ratios, lower Debt Service Coverage Ratios (DSCRs), and better pricing. Lenders may also be willing to budge on borrower net worth and liquidity requirements. This is because properties located in dense urban areas are much less of a risk for lenders, as they are more likely to remain occupied-- meaning borrowers are much less likely to default. And, if a borrower does default, selling a property in a major market is generally a faster process than selling a property in a smaller one.

The risks associated with investing in an MSA depend on the specific area and the type of investment. Generally, properties located in major MSAs are less of a risk for lenders, as they are more likely to remain occupied and have a faster selling process if a borrower defaults. However, properties located in smaller MSAs or rural areas may be more of a risk for lenders, as they may be more difficult to sell in the event of a default. Additionally, properties located in rural areas may be more difficult to finance, as lenders may require higher net worth and liquidity requirements. To address this issue, the United States Department of Agriculture (USDA) offers loan guarantees for multifamily properties and businesses in rural areas, such as the USDA 538 multifamily loan program, which offers favorable terms for borrowers, including LTVs up to 90%.

There are currently 383 Metropolitan Statistical Areas (MSAs) in the United States and 7 in Puerto Rico. An MSA generally groups several cities and counties that are closely interconnected, which makes it significantly easier for government agencies and businesses to compile statistics about a specific area. Most MSAs are based around one large city, such as Miami, New York City, or Boston, and incorporate nearby cities and counties into one, combined MSA. In order to qualify as an MSA, an area must have one city with a population of at least 50,000 people.

Source: www.commercialrealestate.loans/commercial-real-estate-glossary/msa-metropolitan-statistical-area

In general, small businesses located in major MSAs are more likely to be approved for financing and receive better loan terms than those located in rural areas. This is because properties located in dense urban areas are much less of a risk for lenders, as they are more likely to remain occupied-- meaning borrowers are much less likely to default. And, if a borrower does default, selling a property in a major market is generally a faster process than selling a property in a smaller one.

If a small business is not located in an MSA at all, it becomes much more difficult to get financing, as the risk for lenders greatly increases. However, to address this issue, the United States Department of Agriculture (USDA) guarantees both multifamily loans and business financing for multifamily properties/business in rural areas. In particular, USDA 538 multifamily loans offer extremely favorable terms for borrowers, including LTVs up to 90%, but resident income restrictions do apply.

Investing in a Metropolitan Statistical Area (MSA) can have a variety of tax implications. Generally, properties located in major MSAs are subject to higher property taxes than those located in smaller areas. According to this source, property taxes can vary widely across a target market, and investors should be aware of how much they will potentially be losing. Additionally, it is important to be aware of if property taxes are likely to increase in the near future, as townships or municipalities facing financial hardships may raise taxes as the need arises.