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Commercial real estate benefits by avoiding frenzy of housing

There is no doubt that today’s investment climate has been dominated by the sub-prime loan credit crunch and the incredible fallout that has ensued as a result of this financial crisis.

This, coupled with an expensive war, election uncertainty, escalating energy costs, healthcare chaos, a burgeoning federal deficit and a baby-boomer retirement exodus are all reasonable concerns that will impact our economy and contribute to potential interest-rate fluctuations and inflation fears.

But it is important to keep the perspective that within every situation there is an opportunity. As someone recently pointed out to me, the Chinese have two brush strokes for the word crisis – one stands for danger and the other for opportunity.

The commercial real estate market remains stable. The market has made steady gains over many years for the most part, but it never experienced the buyer frenzy and extreme appreciation that occurred in the residential market a few years ago.

In fact, one area of the commercial real estate market that has actually benefited by the sub-prime situation is the apartment and multi-family residential sector. This area of investment has actually experienced an up-tick in rental rates, diminished vacancy rates and renewed demand for land.

Arguably, the biggest impact to the commercial market has been the vacancy that is occurring due to the residential housing recession and the receding industries that have been forced to follow suit. Yet, this decline in office and warehouse occupancy has created an excellent environment for the owner, user and business owner.

Interest rates continue to be reasonable, and the vacancy factor has created more inventory and purchasing opportunities than we’ve seen in years. In other words, it’s a great time to be a buyer

and take advantage of the SBA lending opportunities. It’s equally important to note that the Sonoma County’s economy is comprised of a significant number of entrepreneurial businesses, and small businesses contribute significantly to our economic vitality.

Let’s not forget that the wine industry is going strong and attracting international conglomerates to the area in droves.

For those investors looking to capitalize on their real estate equity and create more accelerated income, now is actually a good time to take advantage of the 1031 exchange tax deferment, including liquidating properties with anemic cap rates and heading for areas of the country that have a good economic climate and are experiencing sustainable growth.

The 1031 exchange remains one of the most productive wealth building strategies in our tax system, and should be examined as an option by any real estate investor looking to optimize the return on their investment dollar.

For those concerned with stock market volatility, consider that today you can buy commercial real estate that will give you a better return than the bond yields and you own the property. This opportunity gives you the added value of tax advantages and the opportunity for long-term real estate appreciation.

The most important thing to remember as you absorb all the economic gloom and doom littering our various communication arenas is that the California residential market has historically experienced seven year appreciation cycles. This, too, shall pass and eventually change into a new economic cycle. As another old saying goes, “Don’t wait to buy real estate – buy real estate and wait.” One good investment can be worth a lifetime of toil.

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Annette Cooper is a senior real estate advisor for Keegan & Coppin/Oncor International in Santa Rosa. She can be reached at acooper@keegancoppin.com.