The continued threat of a domestic recession and continued high interest rates could pose serious challenges to the commercial real estate industry in 2023. Despite this uncertainty, real estate remains at the forefront of investor interest, with investors pouring in record amounts. We have invested in commercial real estate in the last two years.
These issues may also be why HNWIs, accredited investors and asset managers seeking alternative income streams not directly linked to the public equity market are adopting portfolio diversification and rebalancing. Investors poured $717 billion into commercial real estate investments last year, surpassing that record only by investing $835 billion in 2021, CBRE reported in its 2023 report. US real estate market outlook.
By comparison, just $80 billion of capital was invested in commercial real estate in 2009, when much of the country was still trying to shake off the effects of the financial crisis, a commercial real estate and investment services firm reported.
As we continue to navigate financial uncertainty, more asset managers and their clients are turning to fractional ownership of commercial real estate as a means of seeking passive income with the potential for more stable income. I anticipate adding to my portfolio.
These investments can be risky and may not be suitable for all investors. However, companies that deem it appropriate may replace these passive commercial real estate investments with more traditional wealth building and retirement products such as 401(k)s and IRAs, or other equity investment portfolios. can be done in parallel with
Even if the country hits a full-blown recession this year, it is not expected to hit as hard as past recessions, CBRE reports. Rising cost of capital has led some investors to step back, but there are still many opportunities for investors to quickly deploy their investment capital into commercial real estate. According to CBRE, total commercial real estate investment is expected to level off in 2023, but will still be well above pre-pandemic levels.
Passive real estate investment, etc. Purchase of fractional shares Delaware statutory trust trusts are designed to generate passive income with a stable income goal.
Between 2019 and 2021, the number of DSTs established in Delaware increased by 30%, according to research firm Mountain Dell Consulting in Salt Lake City. The increase was primarily driven by investors purchasing fractional shares of DST to complete their rights in DST. 1031 Exchange. More than $9.2 billion in capital was raised in 2022 in the Delaware statutory trust market, according to a MDC report.
Baby boomers may be the main reason why this subsector of commercial real estate continues to grow exponentially. With this aging demographic, many are determined to put an end to the “tenant, trash, toilet” cycle by exchanging their actively managed assets for passive real estate investments.
By purchasing DST fractional shares, investors selling highly valued investment properties are able to purchase the exact amount of shares necessary to meet the 1031 exchange requirements and to defer capital gains and depreciation taxes. and the potential for steady cash flow without administrative hassles.
The pre-packaged nature of DST investments may also be another factor in their rapid emergence as a viable alternative to 1031 exchanges. Investors have strict deadlines that must be adhered to when making an exchange, and he has 45 days from the completion of the sale of the abandoned property to identify a replacement property and 45 days from the completion of the sale of the replacement property. requires a total of 180 days. It can be very difficult for investors to identify and close suitable replacements in these compressed timeframes, especially in a real estate market with high investor demand and limited options for exchange buyers.
DST eliminates deadline pressure as funding, due diligence and other key considerations are already in place. Changing to DST reduces the risk of performing any kind of 1031 exchange. Investors can also mix and match different DST stocks to suit their risk tolerance and portfolio diversification and rebalancing requirements.
Investors have a wide range of passive investment options and may find that not all commercial real estate is office space, industrial buildings or flashy commercial properties. Third-party managed storage facilities in the Midwest and multifamily homes in the South could be a good mix of fit-for-purpose real estate investments. Many of these and similar products can be found as assets held within DST.
Technological advances and predictive data analytics
Technology can also help investors and wealth managers rebalance and diversify their portfolios to include highly customized commercial real estate products. Institutional forecasting and forecasting technology on the market for investors and wealth advisors is a very powerful tool. Predictive data analytics help investors customize their commercial real estate holdings and tailor portfolios to their risk tolerance and diversification requirements.
Potential insights gained from data analysis on the commercial real estate market provide a clearer understanding of tenant and consumer trends, as well as trends in key real estate amenities, neighborhood demographics, growth patterns, and more. With this data, investors and wealth managers can seek out commercial real estate investment opportunities that match each individual’s risk tolerance and investment objectives.
tax deferral strategy
Finally, investors exchanging actively managed investment properties for passive real estate investment vehicles should continue to pursue potentially higher value commercial investment properties by deferring capital gains through subsequent exchanges. You can also A final haven for tax deferral strategies involves bequeathing real estate owned to an heir so that the heir can enjoy his one-time increased base, which may be exempt from all deferred capital gains taxes. should include making