By Melanie Robitaille, Sr. Staff Writer and Graphic Designer
In hindsight, it’s easy to see why many industry watchers questioned the future of commercial real estate, a niche that Franchisee, Kris Klair of EXIT Realty Consultants in California has always dealt in. After the U.S. suffered “one of the swiftest economic declines in history” according to a 2021 REALTOR® Magazine article, retail and commercial office space took a huge hit as caution increased around leasing. But Kris, and like-minded investors, saw opportunity.
“[People] are seeing that the commercial business is here to stay whether there’s a pandemic or not. The smart ones took advantage of the temporary downturn,” he explained. “We’re seeing more of the lending side of the commercial real estate vacate due to high interest rates, however overall, we’re seeing a demand in commercial needs. We’re seeing more people taking up office space and retail space lately, and I think that’s due to people getting back to work after the pandemic and getting tired of hiding behind a digital screen. There’s nothing better than shaking hands and making business happen.”
EXIT Realty Upper Midwest Regional Owner, Bill Pankonin sees a different outlook in his Minnesota marketplace saying, “Currently higher interest rates along with lending institutions tightening their standards have required investors to sharpen their pencils and sellers to reconsider pricing options… The demand for office space in many areas waned dramatically and has continued. Many large office buildings are now being retrofitted into apartments, condos, and other uses. Food and hospitality were also hit hard. The hotel industry has since rebounded but the restaurant industry is still wavering. Investors continue to look for value and they have to consider many factors with the ongoing interest rate environment.”
Commercial is only a part of the greater ICI, or Industrial, Commercial, Investment, real estate sector. So, while some areas remain in a state of rebounding and reconfiguration, savvy professionals set their sights on the industrial and investment portions, because well, owning any real estate is considered a safe hedge against inflation. In fact, investors were blamed for “contributing to the inventory shortage in 31 of the top 50 U.S. markets” according to another Markets Most Affected by Investors REALTOR® Magazine article.
The stark reality is, when push comes to shove, pivoting happens. That’s why more creative commercial financing options are being seen, mixed used residential is now booming, and real estate investment trusts or REIT’s are making it easier for residential agents to get into the commercial side of things. ICI is a very different beast than residential though according to Kris, who owns a nine-office operation. He says experience, timing, and liability are the top three major differentiators when asked about the good, the bad and the ugly of servicing this niche. While having an in-house ICI division in his offices has brought major benefits, he also issued a caution to owners thinking about the same.
“[It] creates more of a one-stop shop…But the must-have when doing this is the experience in commercial. The liability can come back and haunt an agent if they don’t know what they’re doing.” These liabilities can encompass everything from a client’s debts and outstanding business loans to a building’s structural integrity, and because there are often several stakeholders from owners to subtenants, Bill agrees that knowledge and professionalism is tantamount saying, “Having the ability for a residential agent to refer to a commercial agent in-house is a big plus. Let the professional ensure all will be handled right, increasing your chances to get paid via a referral. It’s a smart business.”
For further insight on the ICI real estate sector, read the full story in the New Frontiers Edition of the EXIT Achiever.
