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Commercial Real Estate Deals Increase Amid COVID-19 Pandemic, NAIOP Says: How You Can Take Advantage

The impact of the COVID-19 pandemic has been felt throughout the economy, but maybe not in all the ways one would expect.

According to Ron Derven of NAIOP’s Development Magazine, “The COVID-19 pandemic is having a greater impact on commercial real estate than the global financial crisis of earlier in this century. That was a credit and liquidity crisis. The pandemic directly impacts the demand for space…”

As most Americans struggle to keep their jobs and pay their mortgages, commercial real estate investors with cash on hand are actually finding opportunities en masse. For this reason, there is no greater time than NOW to look for strategic opportunities to place investments for when the economy returns to full health! If you are a seasoned investor or are looking to invest for the first time, follow these tips on how you can best take advantage of the current state of the commercial real estate market…

Focus on the Long Game

With the current state of the economy, you’re unlikely to benefit from fast deals. On the other hand, making strategic, long-term investments are more likely to pay off.

Since the upturn of the economy widely depends on the country’s ability to provide and distribute a vaccine for COVID-19, it’s very difficult to predict how quickly things will pick back up. In addition, since so many small businesses were left out of the first round of the CARES Act, it’s hard to say how long retail spaces and office buildings will remain vacant. This is especially important to note as individuals continue to pivot to find COVID-friendly employment solutions, such as developing businesses that work from home.

For example, it’s important to note that the work-from-home trend is not likely to be permanent; and thus, office buildings will eventually be full once more. As more and more workers develop Zoom fatigue and begin to crave professional/social interaction again, movement back into office buildings and even retail stores will pick up — however, offices will need to evolve with the times. Long gone are the days of tiny cubicles and cramped conference rooms! In order to compete, office space will need to become more open and flexible, which leads us to our next tip…

Take Advantage of Vacancies to Renovate and Upgrade for Higher Rent Rolls

If you have cash reserves on hand, consider investing them into the future of your CRE. Although we’re likely to see vacancies increase in the short term, things will eventually pick back up. That is why, if your building is in need of repairs or renovations, now is the time!

Especially for investors that hold office space properties, it’s important to consider renovations now more than ever.

Maria Sicola, a founding partner of CityStream Solutions, a consulting firm, says this:

“The open-office plan concept, as we know it today, will be a trend of the past. Issues with noise, inability to concentrate and numerous distractions were already creating issues with productivity. Square footage per employee was shrinking to levels that, in some cases, were precariously close to violating codes. The move toward efficiency and lowering costs — while still important to the corporate bottom line — will now give way to flexibility, resilience, employee satisfaction and productivity.”

As demand for newer-concept office spaces eventually begins to build again, commercial office buildings with these upgrades will become the most valuable. For this reason, identifying possible investment opportunities in Class B or Class C office buildings that can be remodeled with newer workspace concepts is a solid move for the mid- to long-game.

Consider Repurposing Your Property Type

In addition to considering renovations for commercial buildings, there is another huge opportunity that you should also consider: repurposing property types. This out-of-the-box thinking could potentially turn your investment from coal into gold! For example:

Let’s say your small strip mall has turned into a ghost town. The retail businesses that once occupied the building have backed out due to COVID-19, and you lack a powerful anchor, like a grocery store. Instead of sitting on the property and waiting for the economy to empower retail once more, consider repurposing the property into multifamily housing or a mixed-use property! Most retail centers meet the requirements for multifamily housing since they already include parking and plumbing – so why not just build them up and cash in on a property type that has a more stable immediate future?

Another property type that is facing major challenges in the COVID economy is the hospitality/hotel property. Due to its features, including multiple rooms, wheelchair accessibility, and amenities, there is a huge opportunity to repurpose this property type into another special-use property, such as senior housing.

Although the repurposing of property isn’t usually an investor’s first instinct when facing challenges, with this economy’s uncertain future, a pivot might truly pay off! During this time, it’s important to think outside the box and identify creative strategic opportunities, like these and like those in our next tip about discovering housing trends…

Identify New Opportunities in Up-and-Coming Communities

Downtown and even suburban areas that were experiencing revitalization before the pandemic are likely to be under pressure in the current state of the economy. If there is reason to believe that progress in these communities will continue once more, then it might be a good time to snatch up these commercial properties that are in peril and hold onto them for a large return in the future.

In addition, taking a closer look at infrastructure improvements and expansion can be a precursor to a new up-and-coming community. Given that more and more people are leaving large cities to work remotely, they’ll be looking to settle into more affordable suburban areas. For this reason, identifying new highway exits and main roads can help point you in the direction of smart commercial real estate investments to make, which includes investing in our next topic: land.

Invest in Land

Purchasing land, as a long-term investment strategy, is a great move to make in the market’s current state. When the economy picks back up, you can decide to either sell or develop the land, which will help you come out profitable in either circumstance.

In addition to larger plots of land, you may also want to consider smaller parcels in downtown and suburban areas that were experiencing a revival before the pandemic. As the economy begins to recover and development picks back up, these parcels have the potential to deliver a considerable profit if they are necessary to a commercial building or city center’s expansion.

Invest in Growing E-Commerce with Industrial Properties

It used to be that office and retail buildings were considered more attractive than industrial properties – but the pandemic has changed that belief. As people move out of offices and into their work-from-home offices, and as many small businesses shut down from a lack of CARES Act funding, industrial production rages on.

In fact, throughout the pandemic, interest in industrial properties has continued to increase – and it is showing no signs of slowing down. This is because consumers haven’t stopping buying goods, but rather, they have changed how they buy goods. With e-commerce booming, production is expected to ramp up, and more industrial space will be needed.

Even beyond the pandemic, industrial properties are expected to increase in value. As the U.S. continues to repair its trade wars overseas, more and more companies will move to create full production here in the states. That is another reason why now, more than ever, is the golden time to invest in industrial commercial real estate.

Consider REITs

Similar to a mutual fund, REITs (Real Estate Investment Trusts) fund, own, and even operate portfolios of commercial real estate. These portfolios behave similarly to stocks, and thus allow investors like you to invest and earn dividends without having to fund, own, or operate the properties yourself. REITs are known for offering strong, steady annual dividends and are fairly easy to buy or sell.

Investing in REITs during the pandemic could be a great opportunity for someone who wants to dabble in commercial real estate without the responsibility of managing a property. Plus, when the economy picks back up, those shares are likely to pay out nicely.

Although everything continues to change and evolve as certain states pick back up or shut down, these six tips should prove to be generally helpful in almost all markets. As with any commercial real estate investment, make sure to deeply research all opportunities and speak to financial advisors, like the commercial loan specialists at ComCapFL. Whether you have been investing for decades or are itching to get in the game, adding an additional seasoned perspective from our experts may open up additional investment opportunities that you might have not imagined possible!

Blog, Commercial Loan News, Commercial Real Estate, Fast Business Loan, SBA

How the Commercial Financing Landscape is Changing Amid the COVID-19 Pandemic

Surviving Financial Lending Crisis of 2020

…this is the new normal.

There has been a major shift in the landscape of commercial and business lending as result of the recent economic shutdown due to COVID-19. Some of the effects on the economy are obvious, while others are not yet as clear.

On an individual level, our country is witnessing an unemployment crisis. We are seeing the highest unemployment rates since the Great Depression. While some expect to be out of work only temporarily, many will find their job loss to be permanent. While the real numbers are yet to be determined, it’s possible that as many as 20 million Americans will remain jobless in the near term, despite businesses reopening and inviting workers back. Some of the other resulting effects of this widespread unemployment will take months and possibly years before their full impact becomes apparent.

Meanwhile, businesses are facing unprecedented challenges. While many were hoping for a safety net from the CARES Act, most will soon close their doors. While these loans were intended to save small business, lax guidelines for borrowing caused most of the PPP and EIDL money to go to large business and corporations through carefully exploited loopholes. In good news, perhaps some small businesses will find other financing relief as a few private equity and bank-owned funds are getting back to agency and SBA loans. Although SBA loans have been available in both 7a and 504 programs, exposure and risk are now being considered even more carefully. Take SBA 504 loans for example: Currently, SBA 504 programs have become scarce and are no longer available under $1 million. Because of the effects of COVID-19, every lender is treating their due diligence requirements differently and being careful to measure the impact of the recent months on each individual business loan request.

In the commercial real estate markets, most banks and alternative lenders are being overly cautious. Many find themselves running behind from using remote workforces or from trying to keep up with deployment of the PPP loan program. In most cases, they’re prioritizing existing clients in the interest of protecting exposure and portfolios, rather than taking new clients and originating new loans.

In the commercial property space, the jury is still out on retail, office and mixed-use properties in terms of the predominant components of these property types. The least affected property types appear to be multifamily apartments and to a lesser degree, industrial properties. The CLO lenders, who utilize the credit market to originate loans, are sidelined; and unprecedented new rules are being written for exposure, leverage, and cash reserves. Most lenders are adjusting their LTV percentage, with very few going over 65% and virtually none of them doing cash-out or non-recourse loans. While there’s still plenty of money sidelined in private equity, CMBS has been slow to restart, and private equity funds that are top-heavy are carefully examining every risk, with many deals getting pushed to the side. These days, a multifamily commercial loan over $1 million is more likely to come through an agency-backed program like Freddie Mac than from a balance sheet loan.

While we don’t have a crystal ball, at ComCapFL, we do have decades of experience in changing markets. Our read on the current market is that we will continue to see very little aggressive lending from the banks who have grown more cautious steadily over the years, even before COVID-19. However, it will take many months before we start to get a real feel for the overall impact on the US and world economies. A good comparison to the current situation would be the Black Monday market crash in October of 1987, the largest one-day drop since the crash in 1929 that preceded the Great Depression: Whereas consumer sentiment returned to normal rather quickly around 1988, it wasn’t until October 1990 that the economy actually re-stabilized and we entered into an almost 10-year bull market.

Make no mistake about it, our country is definitely in a very volatile position with its rapidly changing landscape for commercial money. That’s why now, more than ever, it’s extremely important that you have a competent and experienced commercial financing professional to help guide you through the current market and lending climate. Going at it alone may prove to be extremely difficult for even the most seasoned investors and stabilized businesses.

At ComCapFL, we’re here to assist you in navigating through these turbulent waters and getting you through these tough times. Give us a call at (888) 959-1648 or email us at info@comcapfl.com to speak to a specialist about real solutions for your business or real estate investment financing.

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