Self-Directed IRAs: A New Avenue for Investing in Distressed Commercial Property

The landscape of commercial real estate in the United States is undergoing significant changes, presenting unique investment opportunities for those with self-directed Individual Retirement Accounts (IRAs). Jaime Raskulinecz, CEO of Next Generation Trust Company, has shed light on the potential for investors to capitalize on the distressed commercial property market using these retirement vehicles.

According to Raskulinecz, the shift towards remote work and the rise of online shopping have accelerated the decline in commercial property occupancy, a trend that began before the COVID-19 pandemic but has since intensified. This has resulted in a growing pool of distressed commercial properties across the country, from suburban office parks to metropolitan office buildings and shopping malls.

The current state of the U.S. commercial property market is characterized by declining asset valuations and transaction volumes. Raskulinecz points to a Wall Street Journal report indicating that over $2.2 trillion in commercial mortgages is set to mature by the end of 2027, further contributing to the market's volatility.

Recent statistics paint a compelling picture of the commercial real estate sector. By the end of 2023, the market value of distressed commercial properties had reached nearly $86 billion, with offices comprising 41% of the distressed sector's value. The pool of potentially distressed properties was even larger, totaling $234.6 billion, with multifamily and office properties representing significant portions of this figure.

Raskulinecz notes that while these numbers may seem alarming for commercial property owners, they create opportunities for investors interested in commercial real estate, particularly those utilizing self-directed IRAs. "Real estate provides a long-term investment with returns derived through asset appreciation and the potential rental income from investment properties," she explains.

Self-directed IRAs allow investors to include alternative assets like real estate in their retirement portfolios. The asset class encompasses a wide range of properties, including office buildings, multifamily properties, warehouses, industrial properties, self-storage facilities, strip malls, shopping centers, and hotels.

However, Raskulinecz cautions that investors must be aware of the rules governing self-directed IRA investments. "As with all self-directed investments, the income and expenses related to the assets flow through the account to avoid self-dealing, which will create a prohibited transaction and cause the account to lose its tax-advantaged status," she warns.

For those interested in exploring this investment strategy, Raskulinecz recommends seeking education on self-directed retirement plans and nontraditional investments. Next Generation Trust Company provides comprehensive account administration and transaction support for self-directed IRAs, acting as a custodian for all accounts.

As the commercial real estate market continues to evolve, self-directed IRAs may offer a unique opportunity for investors to diversify their retirement portfolios and potentially benefit from the current market conditions. However, as with any investment strategy, it is crucial for individuals to conduct thorough research and consider seeking professional advice before making decisions.

The changing landscape of commercial real estate and the potential for investment through self-directed IRAs represents a significant development in the world of retirement planning and real estate investment. As more investors become aware of these opportunities, it could lead to increased activity in the distressed commercial property market and potentially contribute to the revitalization of underutilized commercial spaces across the United States.