As COVID-19 continues to disrupt the economy, now could be a great time to make opportunistic commercial real estate investments in the Phoenix Metropolitan area. With the unpredictable nature of the market, those with cash have an upper hand. Furthermore, those with strong credit can finance with interest rates that are two and four percent below many cap rate values. This is a rare time where investors could make money by financing. While market volatility can mean uncertainty, remember it’s about timing in the market, not timing the market.
If you’re not sure where to begin, consider properties where owners have troubled operations and are in over their heads with failing procedures. When property cash reserves and the owner’s personal resources are unable to float a property through lean times, the owner may choose the better of two difficult options and sell at a discounted price to avoid foreclosure. Other places to seek opportunity are properties approaching the end of their financing term and have a large balloon payment. Loan maturities are “drop dead” dates that force owners to either sell or refinance.
For those that can incur a higher risk and imagination for repositioning the property, retail may be a good option. Retail space, often on prime corners, is available for the lowest price in years. For those investors who want less risk, industrial real estate may be a good solution. The shift to e-commerce has boosted the already high demands for industrial space. Furthermore, self-storage facilities, industrial facilities and data centers have faced less-significant declines compared to other asset classes during this time. Office investments still rely on tenant credit and occupancy level. Changes to office culture forced by COVID-19, may present office investments opportunities over the next 6-18 months.
If you are a business owner who plans to stay in the same place for seven years or more, owning property may make more sense than leasing based on numerous financial advantages. An owner/user invests in themselves when purchasing property for their business. Lenders require less down, 10 to 20 percent, for owner/users occupying over 51 percent of the building. Whereas, lenders require 30 to 40 percent down for investment properties based on a buyer’s financial strength and the tenant(s) credibility.
No commercial real estate investment comes without risk. Any investor must fully understand real estate and economic trends at both the local and national levels. Whether you are new to commercial real estate investment or are a seasoned veteran, you should engage an experienced commercial real estate broker. Good ones always add value.
Many first-time investors and business owners attempt to use public listing platforms. Online listings are often outdated, which buyers have no way of knowing, and their calls may go unanswered. This preliminary research helps define what an investor wants and what is available, yet oftentimes they are not able to secure the deal. Searching for investment properties, making calls/appointments with the listing broker and visiting the properties takes a great deal of time. This work is second nature to an experienced broker. Also, the listing broker has the seller’s interest in mind, not yours.
A professional commercial real estate broker employs a wide array of proprietary listing databases not available to the general public. Often, the broker can identify “off-market” opportunities by calling owners directly. The best brokers use their relationships with developers, lenders, appraisers, attorneys, and city planning officials to gain market insight, to find investment opportunities and ensure your investment pays off well into the future.
Who doesn’t want to save money? A seasoned commercial real estate buyer representative will identify only those properties that fully meet your criteria. A good broker knows current market values, has economic insight, and is a skillful negotiator, ensuring his/her buyer gets a fair market price. Additionally, your buyer rep verifies lease rates the tenants are paying to confirm they are in line with market lease rates in the area.
Often hard economic woes bring great opportunities for those looking to get into commercial real estate. As you consider investing during this time, remember, cash is king and often sweetens the buyer’s negotiation strength.
Andrea Davis, CCIM, has practiced commercial real estate for over twenty years. Davis’s breadth of knowledge stretches from developers to landlords to buyer/tenant representation and investments. Within the commercial real estate industry, Davis has won numerous awards. The Phoenix Business Journal ranked Andrea Davis CRE in the top 10 of Ranking Arizona for the category of Office Brokerage. Her book, SimpLEASEity™, focuses on leasing and is the first in a series of commercial real estate guidebooks. Her next book, Simply Own It, the American Dream, is forthcoming this year.
This content was originally published here.