The U.S. economy has seen a major hit since the COVID times. There have been a lot of challenges that industries are facing across the country.
But when it comes to real estate, things become challenging, especially when the industry already has been suffering. Further, with the government bringing in changes, things have become unpredictable.
In the near time, one is expected to see a government shutdown that can have a major impact on the real estate industry. But of all, it is the multi-family owners who will be suffering the most.
You must know Congress recently managed to avoid a government shutdown. They did it by passing a last-minute stopgap spending bill.
However, it is only a short-term solution. A government shutdown is still a real possibility when the resolutions expire.
So, what can be done in this situation, or how will it impact the owners? If you are unaware, continue reading ahead to get proper insights.
What is the likelihood of a government shutdown?
As of now, it is quite clear that a government shutdown is way too far from unprecedented. Even the head of Commercial Real Estate Economics at Moody’s Analytics, Tom LaSalvia, agrees with this, given the current political condition in the country.
Another shutdown seems to be near, but when and for how long rather than if there is a possibility for the same.
But one must know this doesn’t mean that there will be a 2023 government shutdown. The conflicts going across the world will give lawmakers a greater sense of urgency to come together and work more quickly.
Further, they can even agree to the situation that the current looming economic shutdown or slowdown is causing distress for the country.
But none of the party will be ready to take the blame for adding another major political and economic shock especially when the elections are quite near.
Alternatively, there is a possibility that Congress will go ahead to pass another stopgap bill for temporarily funding the government and avoiding such a situation.
What happens if the government shuts down?
A government shutdown generally happens when Congress fails to manage to pass the 12 spending bills that are required for funding the federal government.
Without proper funding bills, US Federal Reserve agencies and departments will have to halt nonessential work and even shut down entire organizations.
Further, the government will stop processing payrolls if the shutdown lasts.
But the most important thing here is many government institutions and personnel are expected, meaning they will continue to work even if there is a government shutdown.
Why does the length of the government shutdown matter?
Although a shutdown is not something that one expects to be, it is essential to stay up to date with all this special news about it. There is a possibility that a shutdown can last four days or even weeks.
You must know the second 2018 shutdown was extended even in the year 2019 that lasted for about 34 days.
Keep in mind the impact on the market sentiment and the economic growth will keep growing the longer the shutdown lasts.
Let us give you an example. During the 2018 first shutdown which lasted for about two days, there was minimal economic effects.
While 2018 to 19 government shutdowns brought in major significant impacts. This included.
- A delay of about $18 billion in federal discretionary spending for purchases of goods and services and compensation. It even resulted in the suspension of some federal services.
- A reduction in Q4 2018 real gross GDP by approx. s$3 billion.
- A loss of more than 25,000 years of productivity from furloughed workers.
What impact can a shutdown have on the CRE industry?
When it comes to the thought of a government shutdown, things already start to get scary as the industry suffers majorly and a lot of changes are brought in.
However, there is a relief. A government shutdown will have minimal impact on the real estate industry.
But keep in mind the interest rate environment places the real state in a different position if there is a government shutdown now.
A government shutdown that shows further government dysfunction will cause major harm to the U.S. government’s credibility and will put pressure on the government debt.
Now, any additional shock on the interest rates will amplify and put pressure on the already difficult refinance situation for most of commercial real estate loans.
It is now quite difficult to predict how the interest rates will respond to the government shutdown.
On one side, the views or thoughts of a weaker U.S. Governance will result in higher interest rates, while the volatile market conditions on the high recession concerns will result in a flight to quality. This will push treasury yields lower.
Within the CRE industry, the government plays a major role in multi-family housing and other sectors.
For instance, Section 8, low-income housing tax credit, and Federal Housing Administration programs are all at risk but mostly in the form of delays rather than having long-lasting impacts on the industry.
Further, it is crucial to note that government assistance will also be delayed, which will affect rental payments.
Even affordable housing can see a major hit, and the postponed payments can cause problems for the market rental owners and workforce depending on their mix of residents.
How can multifamily property owners prepare for the shutdown?
No doubt, the real estate industry will not see such a major impact due to the government shutdown, but there will still be things that will make it difficult for the owners.
Although time is limited, there are still things that multi-family investors can do to prepare well in advance.
Here are certain tips that will be a helpful guide to investing in multifamily properties.
- Building reserves
The multifamily owners, especially those like the affordable housing providers who are all reliant on government assistance programs for rent payments, must make sure they have extra reserves to cover at least six months of operating expenses and debts.
- Streamlining operations
Affordable housing providers and multi-family investors must make the process more efficient and optimized.
Further, having a well-managed and optimized cash flow before and during the shutdown will be quite beneficial.
These tactics here can range from creating economies of scale to making investments in rent payment technology.
Keep in mind the government shutdown will increase the market uncertainty. So, it is crucial to stay prepared irrespective of the market condition or how much the government can go under shutdown.
It is proper preparation and planning that the investors need to survive the tough market conditions and make the most of the available opportunities at hand.
Can multifamily investors survive in the tough situation?
The multifamily industry comes with lots of ups and downs. However, the future of multifamily real estate is one of the most stable types of property one can invest in for better results.
Even if there is a government shutdown, it is still possible for you to avoid any difficulties. You can simply prepare yourself by taking steps to write in advance.
Keep in mind although multi-family property pays well, you must keep on diversifying your portfolio. It is the key to avoiding challenging situations and making the most of property investment in the CRE industry.
No matter the size or scale of operations or investment you wish to make, take your time to understand the market condition before taking any step.
With a proper understanding of the market and what is going on politically, you can take proper measures right from the start. Thus, avoiding any potential risk later in the future.
No doubt, it comes with a lot of challenges. Here, you can consider getting professional support for managing things and avoiding any tough situations.
The experts will be there to guide you in the right direction and will help you understand the market type that will be better for investment.
Additionally, they will also help you take proper measures for safeguarding your investment and ensuring a good return even during a government shutdown.
Professional assistance here will make a major difference. So, consider finding someone who has got proper insight and ideas about the industry.
An investment in multi-family property comes with a lot of benefits, but a government shutdown brings in challenges. Luckily, some tips will help you avoid loss.
So, if you are ready for a better investment, you can consider getting help from Private Capital Investors. They have expert professionals who will help you identify the top deals available and make the most of the available opportunities.
Whether you are looking for short-term financing or long-term, the experts will help you get the best deal possible.
You can get in touch with them to get the professional support you require. Their experts are knowledgeable and will help you get better assistance. So, get in touch today for the right support.