How Is COVID-19 Affecting the Value of Commercial Real Estate?

The COVID-19 pandemic has had far-reaching effects across many industries, including commercial real estate. Most investors today are wondering what, exactly, their buildings are worth, especially as states start to lift their shelter-in-place orders. Commercial real estate value in Georgia depends on having enough net income from rents to profit from owning and maintaining their buildings. When the nation is economically disadvantaged and businesses are closing left and right, this is likely to drive prices way down.

Before the COVID-19 crisis, investors were in a relatively good place—owners had good balance sheets, available capital and manageable debt. Now that the pandemic has spread across America, the market is seeing some ill effects, which is why it’s smart to work with tax professionals for commercial real estate tax appeals in Georgia. If the values of your buildings are going down and there’s no way to pay taxes based on the formerly assessed price, you’ll need assistance in dealing with tax assessors.

Effects on commercial real estate value

When the coronavirus crisis was officially deemed a pandemic in March 2020, the market immediately took a hit. While commercial real estate often lags behind other financial markets by about six months, in this case, it showed a decline right away, due to businesses and trades being shut down.

For example, Manhattan saw an immediate 25 percent drop in leasing volume, which is the lowest it’s been since 2013. Many owners have had to apply for short-term loans and other solutions to solve new liquidity problems, and while lenders are still backing loans, they’re also treading far more cautiously than they might have in the past. With American unemployment at a high and millions of businesses closing temporarily or permanently across the country, it’s no great surprise that the pandemic’s effects touch both renters and property owners alike.

Many investors are finding that they need to negotiate significantly smaller rents with their tenants, too—when they are able to get paid. Some investors report 15 to 20 percent declines in prices per square foot, which might be a great deal for tenants, but certainly won’t pay the property owner’s bills and taxes.

What to do next

If you’re struggling due to the pandemic, you have a few options. First, the federal government is providing short-term financing to commercial real estate investors in the commercial mortgage-backed securities arena, which helps pay the necessary costs in the short term. The CARES Act also was passed in order to encourage liquidity and cash flow. There are specific terms within the act that lighten the tax burden on commercial real estate investors, particularly those who need adjustments on bonus depreciation and carrying forward minimum tax credits.

Experts are predicting we may see up to a 10 percent decrease in American GDP for 2020, thanks to the unique COVID-19 situation. Ultimately, investors need to create a backup plan, adjust to our “new normal” and consult with tax professionals to make sure their businesses survive.

Need professional tax assistance of have questions about your commercial real estate value in Georgia? Call Property Tax Eagle of Georgia, LLC today.

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