There is much discussion about the cost of buying a new home right now. Once bolstered by low-interest rates, property values went up. Those values have come down just a bit, but high-interest rates are driving up costs, so payments for the same loan are up to 80% higher than just a few years ago. These factors also affected the commercial real estate industry, but the forecast looks even worse.
Why worse?
According to a recent story by CNN, the $20 trillion commercial real estate industry has greatly benefitted from low-interest rates and easy credit. The economy has hit it just as it hit the residential market, but the pandemic also chased businesses out of brick-and-mortar spaces either because they went to a work-from-home format or because they went under. Lower occupancy means less income for the owners. The impact could be felt more acutely by office buildings and retail spaces, leaving multifamily housing and industrial spaces more breathing room and stability.
Banking changes
As mentioned, buyers find it less appealing to take out a loan at a higher rate. Recent developments in the banking industry, where Silicon Valley Bank went under, and UBS Bank had to buy Suisse Bank, have also left an enormous impact. In the past, small and mid-sized regional bands provided loans to those buying real estate. With smaller banks concerned about liquidity after what happened to Suisse Bank and Silicon Valley Bank, buyers have or will have a harder time securing a loan. With loans harder to come by, it likely will hurt commercial buildings’ value.
It puts stress on owners and investors
The macroeconomics in play here could impact deals in the works, deals closing, and partnerships created by commercial real estate deals. Stress means disputes among the partners or with sellers, lenders and others involved in more significant deals. Individuals, partnerships and corporations may need to protect their best interests during these uncertain times.
It starts with valid contracts, but it may culminate in litigation before a judge when all doesn’t go according to plan. A seasoned litigator can make a significant difference when millions are on the line.