BRIEFINGS
By William Lobel
INVESTORS NEED TO FACE DISTRESSED ASSETS NOW
Commercial real estate investors need to address distressed assets with urgency , as interest rates rise and inflation continues to be a factor .
Cyclical challenges in the economy are nothing new to commercial real estate developers and investors , and 2022 looks to be that kind of year for CRE professionals nationwide .
While many business owners may be tempted to put off facing distressed assets , ignoring the problem will not make it go away . Like a person ignoring symptoms of a serious illness , CRE investors in financial trouble have a far better chance of saving their business , their employees ’ jobs , and their reputations in the marketplace if they seek expert counsel early .
A thorough review of the financial situation can help business owners identify alternatives that may help them avoid bankruptcy before things go too far . And unfortunately , a wave of negative economic indicators is gathering on the horizon , with recent headlines warning of a scary end to this year and / or start to 2023 .
EXPERTS FORECAST LOOMING STORM CLOUDS AHEAD Over the past few years , extraordinarily low interest rates and government funding have helped support our economy . This has allowed many individuals , business owners , real estate investors , and companies to stay above water . But this support effectively is just kicking the problems down the road — and now those problems are beginning to catch up with us .
Some with commercial real estate holdings are experiencing slowing or stopped pay from tenants . And as we have started to see , economic policy and support have begun to dwindle . Economic experts are predicting that many business owners will be hit toward the end of 2022 and into 2023 .
Commercial property owners will be particularly affected as government funds dry up . Shopping center owners and CRE investors have been severely impacted by the pandemic . Already faced with the decline of brick-and-mortar businesses as online shopping becomes the new reality , the retail sector saw these problems become more severe as people moved more shopping online to reduce pandemic risk .
In addition , business owners are facing the ongoing reality of being unable to secure supplies , employees , and / or operating capital . Many businesses have moved their payables from 30 days to 90 days , demonstrating a weakening financial picture . Continuing sanctions against foreign countries have exacerbated supply chain problems along with a backlog of ships in U . S . ports waiting to offload their contents . The obvious result is a difficulty in distributing supplies to their ultimate destinations after they have been off-loaded .
IGNORING THE PROBLEM WILL NOT MAKE IT GO AWAY Declining numbers of shoppers coupled with the staffing problems created by the Great Resignation have negatively impacted the bottom line for nearly all shopping centers ’ real estate . Many are wondering if the government will continue to prop up the economy through the continuation of loans and legislation that prevents evictions , foreclosures , and other types of enforcement of creditors ’ rights .
A past officer of the International Council of Shopping Centers , who is a wellknown shopping center developer , suggests there is little doubt that dark clouds are on
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SUMMER 2022