We’re over 6 months into the pandemic, and all around us we’ve been seeing news about the devastating effects it’s having on the commercial real estate industry. But, I’d like to take a moment to offer up something more positive and explore a few ways that you can find success in commercial real estate during these complex and stressful times.
Target Distressed Properties
Individuals and businesses alike are struggling to pay their rent, which means that landlords then struggle with paying their mortgage. In the last few months, almost half of commercial retail rents weren’t paid.
This leads to an increase in foreclosures, short sales and distressed sales. Office spaces, short-term rentals and multifamily properties are poised to experience high distress rates. This can be an excellent opportunity for a commercial real estate investor who is prepared to invest for the long haul. These high-demand properties also come with a high need to sell, and motivated sellers will likely be open to accepting discounted offers.
Focus on High-Demand Properties
Beyond focusing on high-demand distressed properties, investors can also focus on properties that are high demand and seem to be withstanding the ravaging effects of the pandemic. Properties such as data centers, grocery anchored retail centers, healthcare real estate, and self-storage seem to be immune to (or in some cases have benefitted from) the pandemic. Source
Invest in Strong Markets
Investing in a strong market is a smart move in the best of times, and obviously it is a prudent option during recessions. It’s simple. If you consider how difficult it is to find success in a locale that is stagnant during prosperous economic times, then you can be sure that during a recession, the market will experience a profound negative impact.
Therefore, it’s critical to look at the history of a location that you are considering and how it was trending before the pandemic exploded. This is a good indicator of how it may recover post-recession.
Some things to consider when evaluating a potential market include looking at the resident base. Are the residents employed in a resilient sector of the economy, and will they be able to maintain a steady income during times of crisis? While this applies directly to multi-family investments, it also indirectly impacts the retail sector. If a resident isn’t able to pay rent, then you can safely assume that they won’t have superfluous income to be able to support retail businesses.
Combining the tactics of taking advantage of high-demand, distressed properties in areas with strong markets can lead to a high chance of not only riding out the recession, but also experience great success over the long term. When navigated carefully, a silver lining to this recession can be found.