The commercial real estate sector in the United States is undergoing significant stress, marked by a surge in distressed properties due to evolving work and shopping habits, further accelerated by the COVID-19 pandemic. Jaime Raskulinecz, CEO of Next Generation Trust Company, highlights the potential of self-directed IRAs as a tool for investors to navigate this challenging landscape. With the distressed commercial property sector valued at nearly $86 billion by the end of 2023, and office spaces constituting 41% of this value, the opportunity for strategic investments is evident.
Delinquency rates among office building owners have seen a dramatic increase, from 0.57% in January 2023 to 6.28% in January 2024, signaling the longest period of rising delinquency since 2019. This scenario, combined with over $2.2 trillion in commercial mortgages maturing by the end of 2027, underscores the precarious position of many property owners. However, Raskulinecz points out that these conditions also present a unique opportunity for investors utilizing self-directed IRAs to invest in commercial real estate, benefiting from potential asset appreciation and rental income.
Self-directed IRAs allow for the inclusion of alternative assets like real estate in retirement portfolios, offering a way to diversify investments beyond traditional stocks and bonds. Investors can explore various commercial properties, including offices, multifamily units, and shopping centers. However, Raskulinecz cautions about the importance of adhering to the rules governing these investments to avoid prohibited transactions that could jeopardize the tax-advantaged status of the IRA.
For those considering this investment strategy, thorough due diligence and consultation with financial advisors familiar with self-directed IRAs and real estate are essential. The complexities of the commercial real estate market and the specific regulations surrounding self-directed IRAs demand careful planning and execution. As the commercial real estate market continues to face challenges, the role of self-directed IRAs in facilitating individual investments in distressed properties could become increasingly significant, offering a pathway to long-term wealth building while contributing to the sector's recovery.
