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  • commercial real estate

    Is the commercial real estate crash imminent? I'm looking to buy a clinic, wondering if I should wait a little longer

  • #2
    Why do you think a crash is imminent?

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    • #3
      Originally posted by ENT Doc View Post
      Why do you think a crash is imminent?
      I agree. I tend to think "change" is the better word. Definitely trends occur that impact values.

      I'm just thinking of a couple of deserted shopping malls that are ancient dinosaurs. Down the road there is huge gym, Dominique Moceanu Gymnastics Center. Not the current one in Ohio. The one her father built.
      https://www.yelp.com/biz/moceanu-gymnastics-spring
      It has been dead for a decade and cost to operate makes it complete a disaster even if they sold it for $1. My point is let the numbers guide you and what your projections are. Do not concern yourself with generalities, stick with the property/location you are considering and the business potential of that location.

      If you build a loser, they will run!

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      • #4
        Not all commercial real estate behaves the same.

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        • #5
          Reason is I'm suspecting there will be a lot of extra space that will be on the market, the cinema halls are closing, offices of moving remote, thus Commercial Real Estate should fall ?

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          • #6
            Originally posted by rajat_bhatt View Post
            Reason is I'm suspecting there will be a lot of extra space that will be on the market, the cinema halls are closing, offices of moving remote, thus Commercial Real Estate should fall ?
            Things are rarely that straightforward.

            Last year we could have said a global pandemic is going to devastate the world's economies, so the stock market should go down. Yet, here we are with the pandemic still in progress.

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            • #7
              You're probably no better off than a coin flip with a guess at this point.

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              • #8
                I think the "death of office space" is overdone. People are itching to get out of the house and back to the office. Retail space and cinema down turn due to online shopping and home streaming/viewing was accelerated by COVID. Warehousing is still going strong as is mutlifamily and storage facilities.

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                • #9
                  Thanks for the input

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                  • #10
                    Like everything else real estate- location, location, location. I'd imagine Manhattan would be in trouble. Or any city in that has waves of lockdowns. Some businesses are better with less people at the office. Some cities have had dying retail for years, and the pandemic accelerated it.

                    Mall space and theater space are interesting in the fact that they're so large and not particularly land efficient (as opposed to a high rise).

                    Honestly- it's going to be a mixed bag. Those with capital and a vision to repurpose a space will probably do very well.

                    Here is what chick fil a is changing-
                    https://www.qsrmagazine.com/ordering...t-dining-rooms

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                    • #11
                      As others have said commercial real estate is not a monolith.

                      I wouldn’t want to be in the strip mall/large retail space, which was already going down and was helped along by Covid. Office space demand will take a hit, but far from the catastrophe that many were predicting IMO. it could also be ripe for conversion to multi family housing in the right setting. Multi family, hotels, and warehouse and main st retail/restaurants will be just fine In the longer run. I also don’t see prices falling far because there is an awful lot of cash sitting on the sidelines unlike in 2007-8 that would love to get in at a low price.

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                      • #12
                        As others have mentioned, commercial real estate is a pretty broad sector with a lot of different asset types and classes, and while they all share some factors that impact valuation, they also each have their own unique factors that provide headwinds/tailwinds. The pandemic has had a drastic impact on CRE in general. Some impacts will be lasting, some are temporary. It brought about some new changes, but mostly accelerated trends that were already in motion.

                        Industrial real estate, especially logistic assets, are in extremely high demand and cap rates on the investment side are at historic lows (meaning valuations are at all time highs). Multifamily has been fairly strong, however it's been propped up by a lot of federal actions such as increased UE benefits and stimulus. Who knows when that runs out and the eviction moratorium lifts. Additionally the pandemic and increased remote working, there will be a flight away from dense urban areas into suburban and secondary markets. I don't think that will last forever, but it is probably a trend that will last for a while. Retail is a mixed bag, but the headwinds are greatly exaggerated. First in the pandemic, for every business that was shut down and/or struggled (think sit down restaurants), there was another that had all time record sales and profits (anything home related, quick service restaurants, auto, sporting goods, etc). Retail has a few things going for it. First, consumers are flush with cash and stimulus money that will eventually be spent. Second, quality retail is and will always be some of the valuable, well located real estate. Someone mentioned shopping malls. The high end and first tier ones will continue to operate and thrive moving forward, the secondary and struggling malls will utilize their location in primary, densely populated areas to shift gears into other uses. Many of them are already undergoing modifications to operate as last mile logistic hubs, apartments, hotels, medical uses, etc. Having a 40-120 acre tract of land that is smack dab in the middle of a major metro area brings an inherent underlying floor to its value.

                        Office is the big question mark. I think the way office is used and where the demand is will change, but I also don't think that most of the remote working will wind up being permanent. In the short run most companies can do it. Beyond that it gets difficult if you don't have an established culture and workplace to start from. Some companies can do it, most can't/won't. You may see more spoke and hub set ups though, where you have a smaller main corporate hub where the admin and core support works from, and then several smaller satellite (spoke) offices for other employees to work out of that are more convenient to their homes/clients, and have the added bonus of being cheaper on the rent side of things. Office is probably the biggest wild card and where you could see the most long term shifts in how the space is used and demand change. There are just so many variables in that it's hard to predict.

                        A couple other things to keep in mind:
                        • Inflation is likely to ramp up considerably in the near term with all the money being printed and thrown around. The best hedge for inflation is physical commodities. CRE is basically every physical commodity wrapped into one.
                        • There has been a giant surge in new businesses in the first quarter of 2021. Some of those are just little one man startups and WFH "businesses" but many of them are much more than that.
                        So long post short, no as a whole I don't see a collapse coming for CRE, I see the opposite. Especially as you dive into some of the more specific asset types.

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