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I
thought it would be informative to review a few of the most commonly asked
questions I’m asked these days and the ways in which I am responding.
Are
there any essential deals?
Certainly transactions which are the replacement portion of a relinquished
property - the upleg to a 1031 tax deferred exchange - are essential in order
to defer capital gains. Late yesterday we learned the IRS extended some
deadlines. According to Stephen Decker of IPX 1031 exchange “
Are
new deals occurring?
New closings, yes. But, generally the origin preceded the current craziness.
New listings are appearing on the market. However, most existing contingent
escrows and requirements to buy or lease have hit the pause button until we get
some clarity.
What
do you see after all of this shakes out? As I opined a couple of weeks ago - retail may never
recover as we knew it before. Folks will realize they can occupy fewer square
feet of office space with greater efficiency. The new trend toward co-working
and collaborative work places will be altered because occupants will maintain
distancing. Industrial - in many cases essential - will be the big winner in
commercial real estate classes. Multi-family has a tsunami of issues with rent
control, eviction moratoriums and tenant defaults to overcome.
Is
Commercial Real Estate going to get crushed? In the short run - 6-12 months - quite possibly. Expect a
bounce back to be steeper than 2010. Aside from retail - our fundamentals
pre-Covid - vacancy, absorption, and rent growth were quite strong. If we can
return our economy to work soon - the carnage may be largely avoided.
Is
now a good time to market my commercial real estate? Unless the sale is forced or
a new tenant is sought for a vacant building - I would suggest waiting a few
weeks.
What
is my building worth these days? No one really knows. Value depends upon the capitalized net
income of rents or the utility with which an occupant’s operation relies. In
the former - how will rents be impacted and at what return percentage will the
market place settle? Pre-Covid found yield requirements in the 4.5-5% range.
Now. Anybody’s guess.
Allen
C. Buchanan, SIOR, is a
principal with Lee & Associates Commercial Real Estate Services in Orange.
He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website
is allencbuchanan.blogspot.com.