The Time to Act Is Now

It has been almost two years since the global economy first showed signs of a recession. Today, the economy continues to experience extremely turbulent times characterized by a worldwide credit crisis and declining business revenues across the globe.

The economic downturn is so bad that analysts are forecasting that the commercial real estate industry is poised to experience a crisis far worse than the last great industry recession of the early 1990s. Delinquency rates on loans for hotels, offices and retail and industrial buildings have risen in recent months and are likely to continue as property values decrease and corporations continue to lay off workers, downsize or close their doors.

However, as is the case during every real estate down cycle, many extraordinary real estate opportunities exist for those who have the vision, strategy and capital to recognize and seize the moment. But, as in every period of volatility, that moment is finite, marked by a short series of fleeting windows of opportunity that suddenly disappear when the fundamentals of the market begin to change. The trick is to recognize when that finite moment is occurring.

National statistics are typically not good indicators of when to make a move. Very few ever predict the bottom of the market. Furthermore, when industry news begins to indicate that an apparent recovery is underway, it usually means that those fleeting windows of opportunity have already begun to close since economic statistics typically aren’t validated until months after a market cycle has ended. But several indicators point to now as being the ideal time to invest in real estate.

The real estate market is now poised on a precipice of opportunity: the choice is to buy, lease or invest while there are still affordable deals to be had, or lose these opportunities which only come around once in a generation.

The real estate market is cyclical, experiencing highs and lows that do not correlate to the overall appearance of the global economy. After every recession there surfaces a period of rapid growth.

Historically, the stock market tends to move six months to one year ahead of the economy, with the reaction in the real estate market depending on the interpretation of these moves by business people. In late November of 2008, Wall Street hit a grim milestone in which stocks tumbled to their lowest levels in decades. As time passed, the market’s performance lurched from bad to worse to relatively stable, back to worse and now is moving upward. The impact of this turbulent performance ripples through the economy and erodes consumer confidence.

The Obama administration has started to stimulate infrastructure spending and overall investment, which should help restore consumer confidence. With interest rates at historic low levels and new investment flooding into the market, it has already impacted the real estate markets–residential and commercial–they have begun to pick up.

While it is true that rental rates and property values have decreased, the increased number of home sales in the past two months and the stock market moving up historical percentages indicate that we have most likely hit bottom and are entering a period that will be followed by a full recovery.

Also, new economic reports on construction spending, manufacturing and pending home sales suggest that the recession has moved closer to the bottom, even with more bad news likely in the short term.

Finally, while many larger multinational banks are not lending, locally owned and operated credit unions, community banks and local financial institutions are still eager to finance credit-worthy real estate deals. Money is available: you may have to look harder and be more creative, but deals are getting done today despite the headlines that suggest otherwise.

Having been in the real estate business for close to 50 years and having witnessed at least three real estate downturns, I can say with authority that the time to make a move in real estate is now. These opportunities come but once in a lifetime, and every market cycle creates a new class of investors who emerge stronger than when they entered, having capitalized on the market’s corrections.

Sheldon Gross is president and CEO of Sheldon Gross Realty of West Orange. The views expressed here are the author’s own.