How can investors take advantage of a recession through commercial real estate?

While a recession can bring challenges for commercial real estate investors, it can also create opportunities. Here are some ways that investors can take advantage of a recession through commercial real estate:

1. Look for distressed properties: During a recession, some commercial properties may become distressed due to financial difficulties, such as a high vacancy rate or difficulty making mortgage payments. Investors can seek out these distressed properties and negotiate a favorable deal, potentially buying the property at a discount and turning it around for a profit.

2. Focus on cash flow: In a recession, it's essential to prioritize investments that generate steady cash flow. This could mean investing in commercial properties less susceptible to economic downturns, such as industrial or multifamily properties, or finding properties with long-term leases and stable tenants.

3. Be patient: A recession can be an excellent time to be patient and wait for the right opportunity to present itself. This could mean waiting for prices to come down or for a distressed property to become available.

4. Diversify: Diversification is essential in any investment portfolio, and commercial real estate is no exception. Investors can diversify their portfolio by investing in properties in different sectors, such as office, retail, and industrial, as well as other geographic locations.

5. Consider value-add opportunities: A value-add opportunity involves investing in a property with potential for improvement, such as upgrading the property's amenities or renovating to increase its value. During a recession, value-add opportunities may become more prevalent as landlords may be more willing to negotiate and have difficulty finding tenants.

In summary, investors can take advantage of a recession through commercial real estate by seeking out distressed properties, prioritizing cash flow, being patient, diversifying their portfolio, and considering value-add opportunities. As with any investment, it's essential to do thorough research, consult with professionals, and feel the potential risks and rewards before making investment decisions.

To take advantage of a recessionary market, an investor needs to have good market knowledge to know if a deal that comes across their desk is good or if they may be better off waiting for other opportunities. Feel free to reach out if you are interested in chatting about real estate in the Treasure Valley.

Chase Erkins, SIOR
Principal, Associate Broker

208-789-4900
chasee@leeidaho.com

Buy or Sell. Is it a good time?

As a real estate agent, my obvious answer is YES. But why?

Real estate in the Treasure Valley is probably as good as it has ever been. Demand is soaring, housing prices keep breaking records, the returns for commercial investment properties are compressed more than ever, but it is still a good time to buy. How can this be?

Multiple factors are pushing the market to these new heights. Interest rates at historically low levels make it so we can put the debt on an investment property at 4% for 10-30 years (depending on product type) and purchase a property at a 5-7% cap rate and it still makes sense as a long term investment. Doing this while the Fed chairman, President (current and future), and Speaker of the House are all calling for more printing of money makes this a pretty appealing time to try and find a hedge against potential inflation.

Demand is the other factor that makes buying in the Treasure Valley continue to be a good bet. With Idaho having the fastest growing population per capita and lowest job loss in the nation we have a good recipe for continued growth and development. The hard part about the growth and development is we don’t seem to be keeping up. Permits are down for the year in both residential and commercial construction. Due to this, we are falling further behind in providing products for our businesses and people. With more demand, we will continue to see more price increases.

Assuming the wheel keeps turning the way it currently is, this is the reality we are looking at. What happens if that reality changes though? What would make it a good time to sell now? If in-migration slows to the valley and we don’t continue to reduce our unemployment rate at our current trend we may experience a slowdown. Real estate is influenced by many things but mainly incomes, lending, and mortgage rates. Mortgage rates are about as low as they are going to be without going negative. Lending is still happening, but with more questions and concerns from lenders, and incomes haven’t risen fast enough in the valley to keep up with the increases in prices. Tack on potential inflation in the stores from the continued stimulation out of thin air from the government and we may be looking over the edge of a cliff ready to fall in the next 12-18 months. There is also likely to be an increase in capital gains taxes and another attack on getting rid of the 1031 exchange. I don’t think the latter is probable, but it keeps getting thrown around every couple of years and is something to watch closely.

What reality we end up with is yet to be seen, but the potential for a cliff is a reason some property owners in the valley are choosing to take some chips off the table, shore up their balance sheets, and prepare for a potential buying opportunity in the years to come. 

Boise and the surrounding areas are going through many changes. I think the outlook is strong even if the rest of the country sees some major economic challenges in the coming years. Whether it is a good time for you to buy or sell depends on your personal investment philosophy and your situation. If you don’t have a personal investment philosophy you’re invited to reach out and I’d be happy to give you some things to think about when developing yours out.

Have a great holiday season!

Chase Erkins
Principal, Associate Broker
(208) 789-4900
chasee@leeidaho.com