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MCAs vs. Commercial Property

September 8, 2023

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What happened to commercial property investing?

The traditional allure of commercial property is waning. Since 2020, average returns for commercial property investment have plummeted and are yet to recover to their pre-pandemic levels.

In Q1 of 2021, annual investment volume in commercial real estate fell by 57%. Commercial real estate prices have declined by 15% year-over-year as of May 2023.

The office market has been particularly affected, with leasing activity for office REITs falling 20% on average in Q1 of 2023 compared to the previous year

It is not surprising, then, that more and more investors are turning their attention to other alternative assets, seeking new and profitable avenues for growth.

In this blog post, we will compare how Merchant Cash Advances (MCAs) stack up against investing in commercial property, examining the recent trends, potential impacts on investment strategy, and the advantages of alternative assets.

Exterior view of two commercial buildings
Commercial property has taken some hits over the last four years. Photo by Pixaby.

The decline in Commercial Property: A Look at the Numbers

Over the past four years, the commercial property market has witnessed a series of challenges that have led to a decline in its attractiveness as an investment option. Let’s explore some key statistics:

Declining Rental Yields: According to a report by CBRE, a leading real estate services firm, the average rental yields in major commercial property markets are showing a downward trend.

Their most recent 2023 report states that  “Global commercial real estate investment volume fell by 55% year-over-year in Q1 2023 to US$147 billion. Volume fell by 56% in the Americas, 64% in Europe and 20% in Asia-Pacific.”

CBRE’s data suggests that thanks to high-interest rates and slow economic growth, global investment volume in commercial real estate will decrease by a further 26% in 2023.

Reduced Demand: The COVID-19 pandemic and the subsequent shift towards remote work have disrupted the traditional office space demand.

Retail sectors have also faced challenges due to the rise of e-commerce, the combination of which leads to reduced occupancy rates and lower rental values.

Price Corrections: In some markets, commercial property values went through a correction phase, with prices experiencing a downward adjustment.

Data from JLL shows that prime office values in several Asian cities declined by an average of 10% between 2019 and 2021. The report characterizes the commercial real estate market as “subdued” and “uncertain”.

Digital rendering of a man caring a box labeled ‘loss’
Investors have been feeling the losses in the commercial property sector. Photo by Monstera Production.

The Changing Investment Landscape: Implications for Investment Strategy

Given the decline in commercial property occupancy, value, and ROI, investors are looking to adapt their investment strategies.

Here’s how alternative assets compare:

Diversification: Allocating a portion of your investment portfolio to alternative assets can help diversify risk and reduce overexposure to a single asset class.

MCAs, for example, are an alternative asset class that offers exposure to non-traditional and low-correlation opportunities. This can diversify your overall investment risk.

Steady Cash Flow: MCAs provide an attractive feature of predictable cash flows for investors. Instead of relying on uncertain rental income from commercial properties, MCAs offer a fixed percentage of future sales revenue.

Our notes begin delivering returns into your account almost immediately, leaving you free to draw down an income or reinvest your returns for maximum compounding potential.

Potential for High ROI: While commercial property returns have faced challenges, MCAs have shown resilience and the potential for attractive returns.

According to data from FinImpact, the average ROI on MCAs ranges from 20% to 80%, depending on the industry and borrower’s creditworthiness.

Embracing Alternative Assets: Unlocking New Opportunities

Investors are finding that incorporating alternative assets, like MCAs, can yield several benefits:

Enhanced Risk-Adjusted Returns: By diversifying portfolios with alternative assets, investors can potentially improve risk-adjusted returns.

MCAs, with their distinct risk profile, can provide an additional source of uncorrelated returns, reducing overall portfolio volatility.

Agility and Adaptability: Alternative assets, including MCAs, offer flexibility and quicker capital deployment compared to long-term commercial property investments. This agility can be a strategic advantage for investors.

Potential for Capital Appreciation: The MCA market has experienced some serious growth over the last decade, driven by the increasing demand for different kinds of lending options outside of traditional bank credit.

Investing in MCAs means that you have the chance to participate in the growth of this expanding market.

Remember, the key to maximizing your investment portfolio lies in staying informed and exploring asset classes that align with your investment objectives and your risk appetite.

If you keep this in mind, you will be in the best place to position yourself to capitalize on changing trends and build lasting wealth for your future.

You can get started with MCA investing here.

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