The commercial real estate sector in the United States is undergoing significant stress, driven by shifts in work habits and consumer behavior, further accelerated by the COVID-19 pandemic. This has led to a notable increase in distressed commercial properties, presenting unique opportunities for investors, particularly those utilizing self-directed Individual Retirement Accounts (IRAs). Jaime Raskulinecz, CEO of Next Generation Trust Company, highlights the potential of this investment strategy in the current economic climate.
Recent data underscores the scale of the opportunity, with the distressed commercial property sector reaching a market value of nearly $86 billion by the end of 2023. Offices, in particular, have been hit hard, representing 41% of this value. The broader pool of potentially distressed properties is even larger, estimated at $234.6 billion, with significant portions in multifamily and office segments. The delinquency rates among office building owners have seen a dramatic rise, from 0.57% in January 2023 to 6.28% in January 2024, signaling the longest period of increasing delinquency since 2019.
Raskulinecz points out that the current market conditions are ripe for investors with self-directed IRAs to explore commercial real estate investments. These IRAs allow for the inclusion of alternative assets like real estate, offering the potential for asset appreciation and rental income. However, she cautions that investors must navigate the rules carefully to avoid prohibited transactions that could jeopardize the tax-advantaged status of their accounts.
The strategy of using self-directed IRAs to invest in distressed commercial properties represents a shift in retirement investment approaches. It not only provides individual investors with a way to potentially benefit from current market conditions but also contributes to the diversification of their retirement portfolios. As the commercial real estate market continues to evolve, this method may gain traction among those seeking alternative wealth-building strategies.
For those considering this investment route, thorough due diligence and consultation with financial advisors knowledgeable about self-directed IRAs and real estate investments are essential. The complexities of the market and the specific regulations governing these investments require careful consideration to optimize outcomes.
The growing interest in self-directed IRAs for distressed commercial real estate investments could signal a broader trend in the sector's recovery and transformation. This approach offers a pathway for individual investors to engage with the market while potentially contributing to the revitalization of commercial properties across the country.
