Naples Florida Weekly
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Beware of commercial real estate related investment pitches this season




VERNON

VERNON

COVID-19 hit commercial real estate hard. Real estate that depends on foot traffic such as gyms, hotels, retail stores and restaurants suffered, while work from home arrangements by corporate America continue to leave office spaces empty around the country. For investors, the financial concern is the likelihood of a permanent shift in how companies are approaching buying, leasing, and using spaces.

Companies such as Amazon (AMZN) show retailers around the world that e-commerce is the future of retail, while companies such as Zoom (ZM) suggest that remote work is the future of the workplace in corporate America. As a result of these trends and COVID-19 as an accelerant, the rents generated by much commercial real estate could drop below the costs of the mortgage, maintenance costs, and taxes. And, although it appears interest rates will remain low in the short-term, a rise in interest rates could make it even harder to cover the cost of owning commercial real estate. This could create a domino effect wherein owners cannot pay lenders. Collectively, the foregoing is likely to drive down the value of commercial real estate.

As an investor, you should keep in mind that many commercial real estate investments, including many REITS, are structured in such a way that early distributions and lack of accurate valuations can initially conceal problems with these investments. As a result, don’t be fooled by a pitch that the commercial real estate investment is currently performing as marketed. And, most importantly, do not fall prey to a pitch that you are now being presented with the opportunity to have direct access to investing in commercial real estate opportunities that were previously only available to institutional investors. Institutional investors are now frantically looking to unload their commercial real estate and are willing to pay significant commissions to salespeople who are willing to tell you that this is a great opportunity. Don’t be fooled — focus on what you independently know about commercial real estate.

Our advice is to be wary of investing in commercial real estate unless and until it begins to sell at significantly distressed prices.

Remember, whatever it is, let’s make sure our money is working for us and not for somebody else. ¦

— Chris Vernon is an attorney with Vernon Litigation Group who represents investors in financial disputes throughout the United States. He is also licensed as a Registered Investment Advisor. Courts have accepted Mr. Vernon as an expert on investment related issues as both a lawyer and an investment professional.

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