How Will COVID-19 Impact Commercial Real Estate?
How Will COVID-19 Impact Commercial Real Estate?
As an active commercial real estate agent, I spend a lot of my time each day on the phone with commercial owners. Over just the last few days, it has become more evident what the reality of this current pandemic means to the commercial real estate industry.
I have spoken with clothing distribution companies, food processing businesses, machine shop owners, etc. that are all being directly affected by what is going on globally, all in different ways. Many business owners are yet to feel an impact, but are closely monitoring the situation. Some are making moves to conserve cash in response to higher levels of near term economic uncertainty.
On a positive note, I am currently managing escrows for clients who are taking advantage the lowest interest rates in history. Fully amortized, 25-year SBA mortgages are currently available at the stunning low rate of 2.93%, a nice surprise for those who expected to pay a much higher rate when their escrows opened just weeks ago. Also, investors who are buying assets with long term leases in-place with credit tenants are in a great position.
12 Month Chart of SBA Rates (for illustration only)
Unlike what we are seeing in the volatility of the stock & bond markets, commercial real estate is offering strong and much higher returns than any other asset class. Currently, the US 10-year Treasury bond is at .75%. Meanwhile, you can buy a quality triple-net property with zero or minimal ownership responsibilities with a long term corporate-backed lease at a cap rate ranging from 4.00-5.50%, depending on location and tenant credit strength.
As a local owner, it makes the most sense to persevere and let this unexpected anomaly run its natural course. Low rate mortgage money from the SBA will be an offsetting factor and should help keep demand running ahead of current supply. As far as the leasing market stands, I believe there is going to be a bit of a slowdown over or the next 2-3 months due to the coronavirus and its global repercussions.
It will be interesting to see what takes place in the coming weeks. If you are curious to hear live feedback from neighboring private investors and business owners, feel free to give me a call and I can fill you in. You can contact me via email me at ajize@voitco.com or call me directly 858-458-3361.