Beware of commercial real estate related investment pitches this season
Employee
VERNON
COVID-19 hit commercial real estate hard. Properties that depend on pedestrian traffic, such as gyms, hotels, retail stores, and restaurants, have suffered while American corporate work from home leaves office space empty across the country. For investors, the financial problem is the likelihood of a permanent shift in how companies approach buying, leasing and using space.
Companies like Amazon (AMZN) are showing retailers around the world that e-commerce is the future of retail, while companies like Zoom (ZM) are suggesting that remote work is the future of the corporate workplace in America. As a result of these trends, and COVID-19 as an accelerator, the rents generated by many commercial properties could fall below mortgage, maintenance and tax costs. And while interest rates appear to remain low in the short term, an increase in interest rates could make it even more difficult to cover the cost of owning commercial real estate. This could create a domino effect that leaves homeowners unable to pay lenders. Overall, the foregoing is likely to reduce the value of commercial real estate.
As an investor, you should keep in mind that many commercial real estate investments, including many REITS, are structured in such a way that early distributions and the lack of accurate valuations can initially hide problems with those investments. So don’t be fooled by a pitch that commercial real estate investment is currently developing as marketed. And, most importantly, don’t fall victim to a pitch that you are now offering direct access to commercial real estate investments that were previously only available to institutional investors. Institutional investors are now desperately trying to unload their commercial properties and ready to pay substantial commissions to sellers ready to let you know that this is a great opportunity. Don’t be fooled – focus on what you independently know about commercial real estate.
We advise you to be careful about investing in commercial property unless it is being sold at significantly distressed prices.
Remember, whatever it is, let’s make sure our money works for us and not someone else. ¦
– Chris Vernon is an attorney with the Vernon Litigation Group, representing investors in financial disputes in the United States. He is also licensed as a Registered Investment Advisor. The courts have recognized Mr. Vernon as an investment attorney as both an attorney and an investment professional.