6 Tips for Real Estate Investors to Thrive in a Downturn

We are facing unprecedented times during the COVID-19 pandemic, and the economic outlook moving forward — especially in real estate markets — is uncertain. But some real estate investment experts nationwide say it's clear that office space, retail and restaurants, among other commercial real estate sectors, will face a continued downturn in the coming months.

“Office is a controversial asset class these days," says Micha Watson of Inside1031.com, a resource that assists investors with 1031 tax exchanges. “Many are calling for doom and gloom, saying most companies will be fully remote in 2021 and beyond."

Christopher Popkin, a licensed New Jersey real estate agent at Grace Properties, agrees. “There will absolutely be a fear from investors to make purchases in office space ventures. The future of remote work will have a lasting effect on commercial real estate."

Popkin is quick to note, however, that he doesn't believe remote work will crumble office space investing for the long term. But his belief is that other investments may hold greater promise right now.

So, what do experts believe are the best opportunities for investors during a pandemic-sparked recession? What are some smart steps you can take to hedge your portfolio against loss and come out ahead on the other side?

1. Where Possible, Invest With Cash

“The best thing to do is stay prepared for these slow economic times by keeping cash reserves," says Popkin. He notes that cash reserves can permit you to take advantage of a great deal on a distressed property or to handle expenses that crop up.

Cash reserves can also prove valuable if you're holding a property that requires repairs or maintenance, which is something Artur Muller, founder and CEO of Amluxe Capital, a commercial real estate brokerage in South Florida, recommends in down times. “Take advantage of vacancies to upgrade units and increase rent when things start to pick back up."

2. Buckle In for the Long Haul

Investing in a down economy often means focusing on long-term investments rather than fast deals — another reason to have cash reserves to help weather the storm.

“Be patient and do not panic," says Muller. "As with all real estate, eventually it will pick back up."

Muller reminds that mid- to long-term buy and hold investments are among the most common types of strategies in the type of macro environment we're in now. "Under these conditions, investors like to purchase opportunistic assets to add value and hold it long-term for income and appreciation or reposition it for a resale on a mid-term hold."

3. "Land" Your Money on This Ultimate Buy and Hold Investment

“Great long-term hold investments are things like land," advises Popkin. When the economy recovers, he says, you can choose to develop or sell, coming out profitable either way.

“Historically, investors with a lot of cash and a long time horizon have done well investing in land, particularly if they had a good idea of where development was going to occur when the economy rebounded," adds John Kilpatrick, managing director of Greenfield Advisors in Seattle.

4. Know the Lay of the Land

Many experts agree that knowing the region in which you want to invest represents the key to successful land investments.

“Buying land requires a lot of foresight and knowledge within the market where you're buying," says Popkin, who has made money on both small plots that sit for a long time and investments in growing areas that have sold for upwards of $3 million with a shorter turnaround time.

“Buying land can be extremely profitable and risky at the same time, as you depend on what the surroundings are generating and not how the asset is performing itself," says Muller.

Kilpatrick provides guidance on what to look for, and namely, that's been suburban or downtown areas previously under revitalization. “If the transition from lower use to higher use was interrupted by the recession, but you think the transition is going to continue after the recession, pick up some parcels of land in distress sales," he advises. “Hold onto them through the recession, and you can come out quite well."

Kilpatrick recommends small infill lots, too. If developers seek to aggregate smaller parcels into larger parcels, you'd have gains associated with that aggregation, he says.

He also recommends watching for suburban expansion toward major highways, which is often a sign of an up-and-coming area. Investing in these urban outskirts could offer the opportunity to develop anything from office space or retail to multifamily housing.

“Recently a lot of company headquarters see less value in being in congested expensive cities, and are investing in less crowded, more incentivized areas," Muller says. That's especially true in a post-coronavirus world as office tenants relocate away from core business districts and into the suburbs.

5. Consider This Positive Energy Move

If you don't have bundles of cash on hand and you're not confident in the idea of investing wisely in land, real estate investment trusts (REITs) represent a way to diversify your portfolio with low risk, Kilpatrick suggests. “If I had to pick my favorites, any investment in the digital infrastructure or energy infrastructure would be on the list," he says.

“I suspect when this is all over, there's going to be a serious look at our digital infrastructure and our energy infrastructure," he continues. “I would be looking at data center investments, which are often done through REITs, and infrastructure investments, which, again, can be done through REITs, funds or partnerships."

6. Take Advantage of a Changing Society

Kilpatrick additionally recommends considering Class C office or multi-use properties that may be ripe for renovation, repair or rebuilding.

Muller agrees. “The need for multipurpose spaces is growing as the demand for business diversity and changes to operations continue happening," he says. “In the short term, we will likely see vacancies grow. However, in the longer term I see the office space growing again with all the new concepts being created. Investors should see this as an opportunity to purchase great assets at below-market value."

Kilpatrick adds that he likes investing in “places where people sleep." The demand for multi-dwelling units has been growing for years, and the wave of residential foreclosures that may occur as a result of the pandemic and recession could lead to increased demand for apartment housing.

Couple the need for apartments in walkable areas with growing demand for office and retail in blossoming suburban areas, and multi-use properties could provide a win for investors and the surrounding community, investors say.

Buy, Hold, or Keep Quiet?

With interest rates low, it's possible to thrive even if you don't have cash on hand. “Make a purchase now, or forever hold your peace," says Popkin. “Recessions and down economies are a great time to make a purchase if you have the capability."