You don’t need a degree in economics to figure out when commercial tenants can’t open their doors for business; they can’t pay their landlord.
Without rent, landlords can’t pay their mortgage.
According to MarketWatch, a recent article showed over 10% of commercial mortgage-backed securities (CMBS) are categorized as “special servicing” accounts. What that means is the mortgages aren’t getting paid.
The article also points out that a prominent West 43rd St Times Square property which used to house the New York Times is estimated to have dropped in value from 1.1 billion to 92 million.
You don’t have to go far to see the effects everywhere – malls, hotels, retail, and restaurants are all struggling.
Unless you live in Florida or Texas, most states are still on full or partial lockdown and not allowing restaurants, malls, and smaller retailers to open their doors, especially not at maximum capacity.
But it gets worse.
There’s a dark side of commercial real estate that’s not making headlines.
There are many executives of fortune 1,000 companies sitting on a Zoom conference discussing how they are surprisingly profitable with everyone working from home.
Their surprise has more to do with their belief that people need micromanaging to make money. Covid has changed everything. Employees work from home with no supervision, and many companies are thriving without paying to heat or cool large spaces. And they’re not just saving money and HVAC. They’re saving money on electricity, water, sewer, phone lines, IT, janitorial services, coffee, creamer, printing, maintenance, plumbing, pens, papers, staples, paperclips…
You get the point.
Sure, they may be paying for a big empty building, but once they unload that space, it’s back to making money. And perhaps a lot more money than they made with the huge spaces.
So, it’s not all doom, and gloom like some would like you to think.
Entrepreneurs are like chameleons; we adapt to our surroundings. When we figure out how to adapt to our surroundings and make money… and the economy always follows.
Many will argue a significant collapse in commercial property value is coming, and they could be correct. However, there may be an upside.
Investors to the rescue…
Investors use their money (and OPM) to create earnings, and you can bet they aren’t going to invest money and leave all of that space empty.
They will have to change the way space gets leased because leaving the space empty is not an option.
If there’s one thing we can count on, construction in commercial space will be different in the future.
Commercial property owners who succeed will need options to build out space and change the way they utilize space. – Some will convert to smaller spaces accommodating Zoomers (people who do Zoom calls daily) who are tired of the distractions of home.
Working from home might have been a fun adventure initially, but trying to close that big deal with a dog barking in the background, a cat on your lap, and a hungry 4-year-old that wants a Pop-Tart, is not an ideal situation for growing a small business.
That’s why Zoomers will rush to small commercial space as it becomes available, and they’ll seek spaces from 100 to 250 SF.
Build-outs will continue but on a much smaller scale. What does this mean for those of us in construction? Efficient management is more critical than ever because when the industry moves to smaller spaces to accommodate Zoomers, the work volume will go up. Still, the project size will go down massively.
The days of quoting low to get a big project and banking on the change orders might not work in the future. When a project is complete in weeks instead of years, it might be hard to squeeze the extra money you need to be profitable.
Now more than ever, you have to know where your profit stands before, during, and after completing every project.
That’s why so many contractors use Realtraker to manage their projects, people, paperwork, processes, and profit, all in a single easy-to-use platform.
Realtraker is easy to use regardless of the project’s size and is the only platform with a patent-pending AI that adapts to the way you run your projects.
Besides, managing projects on a spreadsheet doesn’t work. Frankly, it never has. To be competitive today, you need live, up to the minute detail on who’s on the project, what’s causing a delay, and where you stand from a profit standpoint – at all times.
And almost as important, everyone on the job has access to the necessary paperwork, so they spend their time doing their job, not hunting for the latest set of project updates.
So how can you capitalize on the coming trend in the commercial real estate market?
Here are 4 ways for you to capitalize on the coming trend in the commercial real estate market.
- Embrace The Change. Many contractors have a philosophy that they won’t bid on anything under 1,000 SF. As the market changes, this could be suicide for their business when millions of Zoomers seek 100-250 SF private offices away from home. Be ready, willing, and able to take on smaller projects, and you could have more work than ever.
- Seek Opportunities. Struggling commercial investors with low occupancy might be willing to pay more for a quick turnaround on smaller spaces. This allows them to offer smaller spaces with immediate occupancy without paying to remodel an entire building or an entire floor. Additionally, this can keep your cash flow strong because smaller spaces offer a higher profit margin and have less competition.
- Be Prepared. Now is the time to get your house in order. Efficient project management is more critical now than ever. Hammers work well, but nail guns accomplish more in less time. Realtraker is an all-in-one tool you can use to manage all of your projects profitably. You never pay per-user fees, so your entire team can participate at no additional cost.
- Get Profitable Now. If there is one statement I’ve heard from contractors over the years, it’s this; “the project had a lot more profit when we started, but by the end, it was mostly gone.” Profit is not something that just happens. It has to be the primary focus of every project. But why do most projects end with less than 2% profit? Because most contractors don’t manage profit; instead, they count the crumbs after completion. Profit Genie is included with every project with RealTraker. Whether there’s a change in materials, pricing, equipment, labor, or subs, Profit Genie gives you a real-time snapshot to see the impact on the entire project’s overall profit. Allowing you to make adjustments in real-time to make up for losses instead of waiting until the end of the project when it’s too late.
Whether you are a general, electrical, plumbing, or specialty contractor, Realtraker is the solution to help you weather the storm.
