You’ve heard about record high investment sales for U.S. based commercial real estate and for cryptocurrencies in the past year. But what does it all mean?
With a total of $809 billion in 2021, financial strategists question how the pandemic has influenced the strong surge in U.S. commercial property sales. Sales from 2021 are nearly double those from 2020, and they also exceed the prior 2019 record of $600 billion.
Why? Real estate buyers are taking note of pandemic-driven trends to determine how COVID-19 reshaped the ways that Americans live. This includes key ways individuals connect with both bricks-and-mortar establishments and technology. The rise in CRE (commercial real estate) and crypto investments is an indicator of these human-based trends. Investors are watching how commercial property and cryptocurrency sectors will take part in growing their portfolios.
Commercial Real Estate
In terms of bricks-and-mortar, real estate investors have seen significant gains in most U.S. markets. Commercial real estate buyers are claiming warehouses to deploy fulfillment orders for a continued e-commerce boom; as well as purchasing and renovating luxury resorts and hotel properties to take advantage of waylaid wanderlust. In cities, investors are buying apartment buildings to capitalize on record high rents.
Some things have changed, however. While Manhattan used to rule commercial real estate sales, urban centers in the sunbelt states now dominate. Data analytics firm, Real Capital, remarks “With uncertainty still plaguing the office sector, and its industrial needs outsourced to neighboring markets, Manhattan is fundamentally not structured to land atop the ranks.” Landlords, instead, are following their tenants; these are employees with greater flexibility for remote work in states with lesser taxes and regulations. As the migration to Florida, Texas, Arizona, and South Carolina continue, so does their increasingly popularity of commercial real estate.
Those interested in new or more robust investments in CRE may be suffering from FOMO (”fear of missing out”) or decision paralysis. How do you determine where to expand your CRE portfolio? It’s important to understand the various asset classes and determine the sectors that are performing best in a specific market. First you may consider whether you‘re interested in retail or industrial property? And is the property in Indiana or Jersey City? Finally, while industrial saw a significant uptick in 2021, you may want to hedge your investment on the slower-to-return retail market.
Creating a thorough due diligence checklist with your advisor will allow you to locate the right investment. You may also consider whether it’s the right time to improve an asset you already have.
Interested in investing in CRE? Here are some questions to get you started:
- If you want to expand an existing building or build new construction, do your market research. Become an expert on the number of units, or additional units, the target market/s can support.
- Familiarize yourself with city and/or municipal permitting procedures and costs. Remember that many of the forms you may need are available to package and store safely on Loan Mantra.
- If you choose a more passive investment through a real estate investment trust (REITs), partnership, private fund or other partnership, complete your due diligence with the individuals or company that will manage the investment.
The pandemic changed human behavior with technology too. Small businesses and medium-sized companies that embraced emergent technologies fared better than those ill-equipped for disruption. Small businesses that automated their user’s experience, allowing for safe delivery or online payments were in a better position to survive temporary shuttering.
Crypto surge is, in part, a response to a former way of American financial life before 2020. Credit card fraud accelerated during the pandemic with small businesses as the disproportionate target. Crypto appeals to many of its users because it’s decentralized, meaning secure payments are not backed by any one financial institution or bank. It also responds to the global market in real time. Instead, payments are made on the blockchain. This allows for enhanced transparency and a more accurate ledger.
The future of cryptocurrency and crypto investments have everything to do with adoption rates. No different than researching the market for a potential commercial real estate investment, it is important to understand how crypto operates, particularly in a global market. Other risks have to do with the still-new industry. Yet despite crypto’s inherent risk, the industry grows stronger as necessary technological infrastructure is built to support its significant goals. The pandemic encouraged adoption of more robust financial technologies.
If you’re considering investing in crypto, here are some other things to consider:
- Do your research. It’s equally important to create a due diligence checklist as it is to create one for a potential commercial property investment.
- Know the platform. Investing in crypto means educating yourself on the various platforms, like Bitcoin and Ethereum. Why are you investing in BTC vs. ETH?
- Understand the various currencies. As cryptocurrency becomes more adopted and widespread, it may make sense to purchase various currencies as a way to diversify your portfolio. Like any investment, and any good CRE investment, however, it is imperative to determine why you believe your chosen cryptocurrency will stand the test of time.
- Remember the global market. For instance, a smart investor will acknowledge that the Ethereum network (ETH) is built around decentralized finance, or DeFi. DeFi cuts out traditional financial intermediaries such as banks, brokers and exchanges to enable "trustless" transactions. This allows for more transparent global transactions. In theory, this is a significant disruption to traditional finance. In practice, transactions on the ETH platform can be costly.
For those who are not quite ready to invest directly in crypto, it is possible to choose a more passive investment with some upside and less exposure. An example of this kind of investment is purchasing stock in financial technologies like Coinbase, Square or PayPal.
For the Future
A diversified investor is looking at both commercial real estate and crypto sectors thoughtfully to find the next opportunity. At Loan Mantra, we help you find your next investment and ensure sure you’re using effective, secure financial technologies. Loan Mantra is your total tech mate, an entire financial ecosystem intended to be high touch, high tech, high impact. Contact us today to find out about our participation in commercial real estate transactions between 3.85%-9.9%.