Why Is Commercial Real Estate In Trouble?

[00:00:00] This week's listener of the week is Cash. Cash, DM us your mailing address. We want to send you a quick thank you. And for all of you listening, if you drop a five star review in the comments, you might be next week's listener of the week. Now, the question we've all been asking is commercial real estate in trouble?

Is it crashing? What's going on? And I'm very excited. to tell you that it is not crashing. However, there is a product type. That is having a worse time than other product types. It was actually really interesting. Everybody was dogging on big box retail in 2020 and the sleeper was office space. So it's the middle of 2023 right now, for all intensive purposes and round numbers.[00:01:00] 

I'm seeing office spaces down about 40% across the country. Which is significant, right? On top of that, office spaces vacancies are at like way all time highs. You can't get a loan on a office building right now for the most part. I'm leasing some office right now, and it ain't pretty. I'm just gonna tell you I don't think I've ever leased something and had so few phone calls, so it's pretty brutal.

So, a quick anecdote with Denver. Prolific developer in town actually just bought an office building downtown for $52.80 a foot. The significance there is A, 52.80 is the number of feet in a mile, and Denver is the mile high city. And B, how low that price [00:02:00] is per square foot. It's actually really alarming. So we've got high vacancy, prices are literally dropping in real time, the commercial real estate market must be crashing.

And you probably feel that way because when you turn on the news, you talk to people who don't know what they're talking about, the media gets ratings based on fear. So. The verbiage around commercial real estate right now is that work from home is taking out the industry and I'm excited to assure you that humans working from home, like I'm doing right now, that looks like I'm in a Taliban video. Humans working from home is not capable of taking down the commercial real estate industry as much as the media wants to push the narrative. And there are massive changes ahead, just like the changes that we've experienced in the last [00:03:00] 5, 10, 15 years as a society when it comes to just how we connect, act, transact, et cetera, right? So we're in a time where everything's changing. The media wants to think it's going down because that kind of ratings sell. But the reality is that the sophisticated investors are licking their lips right now at the sidelines. I'm going to say it again. The sophisticated investors are ready to pounce.

They're looking for blood because they know that while the media is saying, Commercial real estate is crashing. It's all over. While the media is saying it's crashing, that's when you should be buying, right? You don't want to be buying when the media is telling you to buy. That means, everybody's buying.

That means you can't get ahead. But the sophisticated commercial real estate investors know that the industry is cyclical, that a [00:04:00] significant change is happening, and that they can still make significant money in this industry with or without work from home. So it's really just important to understand that commercial real estate is cyclical.

We're coming out of like the best economy in the history of our country. We're coming out of a really strong cycle, which is very powerful. And the reality is, is our needs are changing, right? So what does that look like for you? First and foremost, stack cash, my friends. Cash is king. Cash is always gonna be king.

Syndicating properties. What is syndicating? Pooling together money from friends and family to buy property. Obviously, under ample amounts of due diligence, it's a really effective way to get enough cash to buy properties. And, frankly, it's a way that I've seen many, many, many, [00:05:00] many wealthy commercial real estate investors set themselves up for financial freedom and unlimited travel and all that good stuff that we are working towards.

Because, well, obviously that's... Why we're in this industry. So next time you hear somebody say commercial real estate is crashing, I want you to think about this. Yes, our office buildings are going to change, there's way too many of them. They're in poor locations because they fill our downtowns where we should really have people filling our network. Like in downtown Denver,

nobody lives there, except for homeless people and empty office buildings, right? So the way that we handle office is going to change. We're gonna see adaptive reuses and ways anywhere from tearing the sucker down to [00:06:00] residential, mixed use, retail, storage, and then anybody can put a garage door on it to make it a warehouse is going to.

So, a blip? Well, it's not a blip. It's a massive shift in our consumerism and the way that we interact and our real estate will always react that way. But the reality is, is that humans love to go... To concerts, humans love to go to restaurants, humans like to go to the salon, the bar, the gym, the dry cleaner, and a lot of other places outside of their four walls or their work from home sanctuary, and your strategy in commercial real estate, everybody's strategies changing, because five years ago, it was a different environment. But you have to be nimble in this industry and you have to zig when they zag.

Or else, you're just like those buttheads watching Fox News. [00:07:00] If you've gotten to this part of this video and podcast where you hear me say that, that's a gold nugget. I normally don't say anything political. So, I'm gonna leave you with this. Historically, commercial real estate performs. Period point blank in the history of our country, humans consume it, humans rent it.

And other humans lend on it and make money off of it. There are tumultuous times right now, because we're coming out of a heyday. But while the media is staring people away from commercial real estate, it's time to go all in my friends. It's time to go all in. What questions do you have for me? DM me. Any of your questions at @avivarealestate on all platforms, but I answer to Instagram the best.

If you want my free guide, how to get started in commercial real estate that I put a ton of effort into, it's in the show notes below. Go grab it. [00:08:00] And last, next week, what you have to look forward to is, should I even get into commercial real estate? We'll see you then. Thanks for listening.