Before you commit to buy a commercial real estate property, it is key to do your due diligence— including identifying any risks involved with the purchase. Many factors play a role in which risks you may encounter when investing in Anchorage commercial real estate, from economic to industry trends, and you must know how to spot it and manage it in order to achieve success.
What Is Risk?
The first step in identifying risk in Alaska commercial real estate is to assess the factors that may influence the investment’s returns. Anything that could contribute to volatility in the property’s either projected or actual return can be considered a risk and will need to have a plan in place to manage.
Types of Risk
There are several types of risk involved with purchasing commercial real estate and as an investor, analyzing industry trends, the local economic forecast, and even financial statements from the potential property can all help you to get a better grasp of what you can expect. What’s more, you can be prepared for the most common types of commercial real estate risk, which tend to fall into five major categories.
Before purchasing a property in Alaska, real estate investors should look into the employment rate, population, and income of the area to assess economic risk. Investors can also use their findings on this topic to determine rent prices, project vacancy rates and appreciation.
As you may know, commercial real estate is not the most liquid of assets, due largely in part to high transaction costs and longer marketing times. Investors will need to asses their ability to turn the asset into cash while saving as much capital as possible prior to making the purchase.
Legal and Political Risk
As an investor, staying on top of local, state, and federal regulations, codes, and fees will help you to identify risk. Any changes surrounding these could affect your return.
Business and Management Risk
Decisions you make as an investor in Alaska commercial real estate will have a major impact on the risk involved. For instance, if you decide to share certain expenses with the tenant, that could affect your return and thus, must be viewed as a business risk of purchasing the property.
This may be the one risk over which property owners have a good amount of control. Investors ultimately control the property’s leverage and how much debt they will acquire—via financing—to purchase the property. Any changes made to the leverage will affect both the owner’s equity position and return.
Let Northern Edge Real Estate be your guide to the Anchorage commercial real estate market. We can help you find the perfect property for your needs, as well as help you make the best investment possible, from identifying risk to negotiating leases.