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5 Real Estate Strategies in a Volatile Market
1. Solutions Create Opportunity
Solving problems for distressed investors will create prime investment opportunities. Look for ways to provide workouts for distressed investments. As loan terms mature, many properties will be unable to cover the debt service associated with new loans. Financing criteria has changed dramatically and will surprise many investors as they look to re-finance. Large "vulture" funds are being formed for the sole purpose of raising capital to profit from distressed institutional grade investments. On a smaller scale, attentive investors can capitalize on opportunities by providing solutions in their local market.
2. Cash is King
Investors who have been disciplined and kept a healthy amount of liquid assets are now in a favorable position.Kelly Hugh, a well respected real estate economist says "There is such a volume of capital out there. I have three pictures I use in my talks, one is of Niagara Falls, one is the Sahara Desert and the third is the Hoover Dam. The argument is that for a long time we had a Niagara of capital, now people think we have a Sahara but we don't. It's a Hoover Dam. It's all sitting back there. The question is; when does it get released?"
Those investors who can move quickly and provide interim resolutions will come out ahead
3. Change Strategy from Growth Investing to Value Investing
In recent years past, investors had a buffer that alleviated bad investment decisions. Rent growth and appreciation seemed to remedy any ill-advised acquisitions.Now with rent growth and appreciation absent, property owners are forced to find new ways to produce the yield desired. Strong asset management combined with tenant retention will help drive yield in existing properties. New acquisition investments can take advantage of the upward trend in CAP rates.
4. Avoid Lowering Rents
Commercial real estate values are tied to the income the property produces. As retailers are struggling we will see more and more vacancies in the market. Existing property owners should strive to minimize down time and re-tenant quickly. Up-front incentives such as free rent and tenant allowances will help entice new tenants while maintaining your property value for the long-term.
5. "Buy into Fear, Sell into Greed"
There is no arguing we are in a slowing market, however investors that seize the opportunity can turn this into a wealth-creation market. While the masses are standing on the sidelines there are unbelievable opportunities for a knowledgeable investor.
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Reality Check in Today's Market - The definition of a low interest loan according to most Banks:
The reality is Cornerstone Commercial is successfully arranging loans for clients with a variety of conventional and private lenders, so if you need a loan let us see how we can help you. |
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Prepare for the Upturn
As sales decline, you think about cutting expenses. But it's also important to prepare for the next upturn.
Case in point: In the early 2000s, Lucent Technologies experienced a major decline in business, mostly due to telecom trends beyond its control.
First, the company slashed its workforce, and then everyone watched to see how CEO, Patricia Russo, would restore profitability.
Within months, Russo tasked her team with identifying new growth areas, aiming to launch new businesses before the company rebounded. Her goal: finding new revenue independent of telecom-hardware cycles.
The growth team used an outside firm to conduct a short, intense study. Then it revealed a new services business, later named, Lucent Worldwide Service, targeting a diverse customer base. This was a big reason why Lucent later teamed up with Alcatel.
Lesson: Never loose sight of long-term goals, even during a downturn.
Adapted "Upturn Thinking in a Downturn Year," Asaf Farashuddin, strategy+business.
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Cornerstone Commercial Mortgage specializes in commercial real estate finance. We act as mortgage consultants, focusing on providing the appropriate financing solutions for each client.
Contact John Lloyd at 702-379-3468 or
619-293-3919 E-mail - John.lloyd@cmlv.net
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