Every industry has been impacted in one way or another since Covid-19 took the nation by siege in early 2020. Commercial real estate was no exception, with shelter-in-place rules and the widespread acceptance and adoption of working from home to stem the spread of the coronavirus.
In the Pacific Northwest, pandemic notwithstanding, commercial real estate, including the retail and multifamily segments, has experienced its own challenges.
Arguably, we’ve come off the longest up-cycle in history without a correction. There is no doubt that softening had to occur at some point. But each downturn is built differently, and the current situation feels more self-inflicted. The public and private buyer pools have been reduced, but there is still ample cash on the sidelines for the pursuit of appropriately priced assets.
Debt is more challenging but is by no means frozen like it was during the great recession. Fundamentals and debt levels in the commercial real estate world remain healthy. Continued high levels of inflation remain the biggest concern.
On the multifamily side, appropriately priced assets remain attractive to buyers, and the recent pullback of the 10-year Treasury have investors breathing a small sigh of relief. Many believe we’ll see strong rent growth over the next 12 months, and with restrictions mostly lifted, or newly defined, we’re projecting multifamily to be a top contender for assets recovering. I wouldn’t be surprised if we encountered double-digit rent growth: We’ve been politically handcuffed since the beginning of Covid, and owners are now playing catch up.
That said, for investors looking to buy properties in the current market, I would advise connecting with a trusted broker to discuss the market before hunting for the right property. Often the current state of the market, with the nuances that come with it, is different from what buyers perceive from articles or social media posts they’ve read. It’s important to understand just how competitive a market is before you attempt to compete in it.
Have a plan for your debt before you get too far into a deal and start spending real money. Engage a solid attorney: If things suddenly get worse, you’re going to need a good one.
Finding the right broker is also an important key to success in this complex market. Indeed, during turbulent times, having an experienced, intuitive broker for the job becomes more critical than ever. Previous experience will absolutely save you money and time, and the right individual (or firm) can not only help source the best product or buyers but prevent costly mistakes too.
It might seem counterintuitive in an industry so transactional in nature as real estate, but culture is very important. My firm has spent two decades working on its culture, sharing both knowledge and relationships as one aligned team, versus a group of individually competing brokers. This fosters a supportive, collegial work environment, which enables us to give our clients more personal attention. It’s not the only way to be successful, but it works for us and our clients, many of whom we’ve done multiple deals.
For someone who’s wading into the commercial real estate market in this region, particularly multifamily, I would advise them to do their best to get familiar with the updated rent restrictions in the submarkets they’re interested in. They will vary widely and will often change the strategy for repositioning an asset. Also, pay close attention to the lending market. We’ve not only seen significant changes to interest rates, but the underwriting by banks and qualifications of buyers have changed as well.
It’s true that it’s challenging to be in the commercial real estate market now as we emerge from the pandemic, but it’s in no way a dire situation. There are many great opportunities, and the landscape is evolving every day. The savvy investor must be armed with the right industry knowledge, and people, to help them be successful.
Tiffany Wright is the Portland-based president of commercial real estate brokerage CPX.
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