Commercial Real Estate – The Calm Before The Storm
With all the uncertainty out there this seems like a good time to let people know what to expect in the next few months from both commercial real estate and the economy. There are a lot of industries like hotel, cruises, movie theaters, gyms, airlines, etc. that have either contracted or will outright disappear in the next 6 – 9 months. Those jobs will not be coming back until there is an economic recovery, which is way down the road. So unfortunately when all the Government stimulus money from unemployment, PPP, etc. runs out there will be a massive spike in unemployment and bankruptcies. So right now is truly what I feel is the calm before the real storm hits, so make sure you are prepared.
Put off any large purchases because within 6 months there will be huge discounts on most everything. Commercial real estate will be no exception, aside from industrial. Expect to see half vacant retail centers, office buildings and multifamily buildings. Sadly when a commercial property gets foreclosed on it creates a domino effect in the area around it. It happens because the foreclosed property’s value becomes about half of the surrounding properties. Because it was bought for half the price the new owner can afford to price 50% less than his neighbors. This hurts their value and creates a downward rent trend in order to compete with the foreclosed property.
In the next few months you will see many companies and property owners go down that most never thought would. Many are overleveraged with debt and cannot survive without lenders giving them a new lifeline. But the banks are losing lots of money too so that isn’t going to happen. There is no way to sugarcoat this situation folks, we are heading for a really bad situation so please do everything you can to prepare for it now. As always thank you for reading, stay safe and have a great day.
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