From suburban office parks to metropolitan office buildings to shopping malls, a substantial amount of distressed commercial property is available on the market today. Jaime Raskulinecz, CEO of Next Generation Trust Company, attributes the decline in commercial property tenancy to the work-from-home and online shopping trends, which were exacerbated by the COVID-19 pandemic.
Raskulinecz notes that these factors have left commercial property owners with real estate ripe for investment by other parties, including investors with self-directed IRAs. Her firm provides account administration and custodial services for self-directed retirement plans, allowing investors to capitalize on these opportunities.
Declining asset valuations and transaction volumes have further contributed to the growing pool of distressed commercial properties in the U.S. A Wall Street Journal report highlighted that over $2.2 trillion in commercial mortgages is scheduled to mature by the end of 2027, adding to the urgency and investment potential in this sector.
According to a recent blog article on the Next Generation website, the commercial real estate market in the U.S. presents compelling statistics. Offices comprised 41% of the distressed sector's value in 2023, with the market value of distressed commercial properties nearing $86 billion by the end of that year. The pool of potentially distressed properties was $234.6 billion, with the multifamily market representing $67.3 billion and offices $54.7 billion. A CoStar report also cited increasing delinquency rates among office building owners, from 0.57% in January 2023 to 6.28% in January 2024.
Raskulinecz emphasizes that while the situation appears dire for commercial property owners, it lays the foundation for savvy investors interested in commercial real estate, an alternative asset allowed in a self-directed IRA. Real estate offers a long-term investment with returns derived through asset appreciation and potential rental income from investment properties.
In a recent Forbes Finance Council article, Raskulinecz discussed investing in various types of commercial real estate using a self-directed IRA. These include office buildings, multifamily properties, warehouses and industrial properties, self-storage facilities, strip malls and shopping centers, and hotels.
She explains that with self-directed investments, the income and expenses related to the assets flow through the account to avoid self-dealing, which could create a prohibited transaction and cause the account to lose its tax-advantaged status. Next Generation executes these transactions and maintains custody of the assets on behalf of its clients.
A comprehensive explanation of how real estate investments are conducted in a self-directed IRA is available on the Next Generation website. This investment strategy offers a means for individuals to take control of their retirement plans and invest in nontraditional assets, once reserved only for the very wealthy.
