When the main fundamental underpinnings of a successful commercial real estate market are flourishing (low unemployment, steady wage growth) you would expect that growth in the market would increase as well. However, according to a recent globest.com report, commercial real estate activity has fallen to a three-year quarterly low.
In the first three months of 2017, there has been less than $100 billion in activity for the first time since 2014. Fortunately, this type of decline was expected, as the market is inherently cyclical. However, this decline is viewed differently because of the uncertainty in the market.
Political uncertainty is a primary culprit. Investors and lenders alike are unsure of how tax reform will affect the marketplace, and they can only speculate on how or when it will come about. With political uncertainty comes monetary uncertainty, as whether or not interest rates will rise keep some from making important investments into properties. Further, technological questions may frustrate potential investment because of the costs of updating older buildings.
Arguably the best way to protect against the downside of uncertainty is to complete as much due diligence as possible, and to have any financing agreement or purchase agreement scrutinized by an experienced real estate attorney. A skilled lawyer can help in identifying potential legal hazards that could have a significant effect on a buyer (or seller). An attorney can also provide sage legal advice on financing packages that can affect profitability.
If you have questions about a potential investment, we stand ready to help.
The preceding is not legal advice.