Some Owners Looking to Preserve the Value of Existing Commercial Assets, Should They Consider Buying, Too?

In a struggle to survive and maintain as best as possible their current portfolios, most commercial property owners are looking to preserve their existing commercial real estate assets. While this is prudent, many investors may be overlooking what may be the greatest buying opportunity in decades.

According to investors and real estate professionals surveyed as part of the first quarter 2009 PricewaterhouseCoopers Korpacz Real Estate Investor Survey, real estate investors do not expect a rebound in any of the commercial real estate sectors until well into 2010. Again, a reasonable response to the overwhelming negative news and horror stories being told to them by the media, friends and family. However, for those sitting on cash, equity or IRA funds (stop waiting, self-direct today!), this thought process is not in their best interests. Properties will be coming online at significantly reduced prices, sometimes .10, .20 or .40 on the dollar, the key is to but in markets that will be bouncing back and gaining momentum in the months and the years ahead. And, unlike other property owners faced with limited financing options, with cash, equity or IRA funds financing options should not be a concern.

For property owners facing declining tenant demand, rising overall capitalization rates and deflated confidence, they, according to the PricewaterhouseCoopers survey, are looking to protect the value of their existing properties in order to compete and survive in an increasingly challenging environment. To mitigate value loss, landlords are being more proactive about signing tenants to new leases, expansions and renewal, in some cases offering leasing incentives and lower rental rates. In addition, some are attempting to cut property costs and better position assets in a rapidly growing tenants' market.

Tim Conlon, partner and U.S. real estate sector leader for PricewaterhouseCoopers said, “It will be survival of the fittest going forward, with owners who are able to remain financially strong being better positioned to capitalize on the buying opportunities that are to come.”

And, those buyer opportunities are here, right now. The Fed, in conjunction with private businesses and individual investors, are setting themselves up to jump on the growing number of distressed assets ready to come on the market.

The time is now for investors, those interested in these potential acquisitions, to boost their liquidity through de-leveraging, joint venture partnerships and select dispositions of current holdings.

For those uninterested in distressed assets, there are multifamily opportunities on the market. As the PricewaterhouseCoopers survey noted, recession conditions in commercial real estate are not expected to ease until 2010 at the earliest for most major property types. One exception to this recovery is the U.S. apartment sector, where demand increased with the rise in foreclosures as many homeowners turned to rental properties as a housing option. As demand for multifamily housing catches up with supply, the apartment sector is expected to emerge from the recession phase of the value cycle ahead of the other sectors.

“Multifamily, if purchased at the right time and in the right market can be recession proof,” noted Michael Anderson, President of RealSource, whose firm since 2002 has averaged a 38.5% rate of return for his company’s investor clients.

So, if you are not in a position to take advantage of these once in a lifetime investment opportunities, then tighten up your purse strings and preserve the assets you have. If have cash, equity or IRA funds, get off the fence and buy, buy, buy.