What Will an Economic Downturn Mean for the Commercial Real Estate Market
As commercial real estate owners, we are all a little optimistic which can prove to be a blessing and a curse. With an economy that isn’t recession proof, investments are never completely stable. Recessions are usually triggered by an event that causes the market to spiral out of control. Most experts think a recession is on the horizon, but what exactly does that mean for the commercial real estate industry, and what steps should commercial real estate investors take to secure their properties and other investments?
Review Loan Terms
Most commercial properties are purchased via a loan, and if an upcoming recession is like the 2008 recession, investors could lose their properties. This doesn’t happen because they were not delinquent on payments; they were unable to refinance the existing loans on their properties. When it comes to your loan, it’s important to review all of the terms and extend your loan term. Look to extend for an additional five years, and consider refinancing the loan in the last couple of years to help lower your interest rates.
Sell at Peak
If you are looking to cash in on some of your properties, now is your chance to maximize the sale price. Most sellers hold off on selling a property during an economic boom because they know they will have to pay capital gains taxes (taxes levied on profits from the sale of a property or investment). Sometimes a property will reach peak value, and it is okay to hold onto it and ride out an economic downturn, but if you are not 100 percent confident in the location, property type, tenants, or you do not want to hold onto the property, you should consider partnering with your commercial real estate broker to start the sale process.
Upgrades and Repairs
If you have been putting off making cosmetic repairs like a new roof, facade replacement, touchup painting, or parking lot improvements, it is time to spend the money and make those improvements. When it comes to making updates and repairs, it’s better to be safe than sorry and spend the money while you have it.
During a recession, not every market will feel the economic pinch and those that will be hit the hardest are usually in areas with low population growth. That’s not to say that larger, high growth markets and popular properties will not be affected at all; they will not feel the economic struggles like those in smaller markets.