Economists don’t have a clear consensus about whether or not we’re headed for recession, which may cause lenders to wonder how their current or prospective investments will fare in the coming months.
Recessions do have an impact on commercial real estate, but not all property types are affected in the same way. Some properties will be at a higher risk of foreclosure, while others can actually yield higher profit margins for investors.
What type of commercial real estate does well in a recession, and what type doesn’t?
Investing in Commercial Real Estate During a Recession
For commercial real estate lenders, recessions have advantages and disadvantages. Understanding these pros and cons can help a lender make it through a downturn, even if one of their properties enters foreclosure or pre-foreclosure.
Benefits
Some types of commercial properties may lose value during a recession. However, the property values usually rebound over time, which presents an interesting investment opportunity for lenders. If a property risks entering foreclosure, the lender may choose to offer a deed in lieu of foreclosure, thereby seizing ownership of the property. The lender would hold on to the property until the value rebounds, in which case, they could sell it for profit or lease it out to a business. This option would be most feasible if the lender has other loans that are generating cash flow.
Other types of properties may become more profitable during a recession, helping the lender maintain a positive cash flow and stabilizing their investment portfolio.
Risks
Consumers usually spend less money during a recession, which can negatively impact retail properties. Real estate developments that require renovation or construction may also become distressed.
What is the Best Commercial Real Estate for Recession?
The following commercial properties tend to be stable or even very profitable during a recession:
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- Suburban office buildings: During a recession, larger corporations are the quickest to downsize. Small to mid-sized office buildings in suburban areas usually don’t experience the same kind of turnover that will cause vacancies, especially offices that host medical practices.
- Self-storage facilities: Households typically downsize during a recession and place their extra belongings in storage units, causing those properties to become more profitable.
- Mobile home parks: Mobile home parks have a strong track record in recessions, and they’re cheaper to operate than apartment buildings.
As always, a diversified portfolio is the best way for lenders to protect themselves during a recession and gives the lender more options on how to handle a foreclosure.
How Foreclosure Firms Can Help You During a Recession
A commercial foreclosure firm can be an invaluable resource for lenders who are trying to make it through a recession. These firms can help lenders plan and execute a successful foreclosure strategy based on the lender’s portfolio and the loan terms.
In many cases, borrowers may simply need to renegotiate the terms of the loan. Foreclosure firms can oversee this process and make sure the agreement benefits the lender. They can also help lenders deal with a strategic default, which commonly happens in recessions because of falling property values.
Lastly, foreclosure firms can help lenders figure out whether it’s best to sell the foreclosed property or pursue a different solution, like a deed in lieu of foreclosure or short sale.
Contact Total Lender Solutions if Your Property Enters Foreclosure
Contact Total Lender Solutions if a borrower stops making payments on a loan. Our team of legal experts can assist you with:
We can help you achieve the best possible outcome so you can make it through a recession and any other kind of market disruption.
