The Implications of a Commercial Real Estate Crash for Your Portfolio

The revolution in remote work has left many office buildings looking like this:

Which has led to major speculation over a potential commercial real estate crash. Here’s a few headlines on this topic from major news outlets from the last couple months:

So is it time to channel your inner Michael Burry for a Big Short 2.0? Well, we’re not in the business of recommending large scale options trades- or any trades for that matter. 

Instead, here’s our advice:

Understand your exposure

A key tenant of personal finance is risk management. Whenever a large scale threat starts to pickup steam, it’s a good rule of thumb to gauge your individual exposure. 

There’s a big difference between owning a few shares of a commercial real estate fund and having half your portfolio tied up in that asset class. Knowing exactly where you rank on that spectrum will decide the appropriate next steps. 

But getting an accurate assessment of your exposure can be difficult, especially if you have a large portfolio. Don’t let this hurdle deter you. 

Option 1 is brute force. Look up a list of the largest commercial real estate funds- a quick google search should provide all the relevant names- and cross check this list with your investments. 

It’s a lengthy process to be sure, but if done carefully it’ll give you a clear answer on what percent of your total investment portfolio is tied up in commercial real estate. 

Option 2 is bit less traditional, but significantly more efficient- without sacrificing any accuracy. 

It’s s a new investing tool called Magnifi. To be clear, Magnifi is a sponsored product, but we wouldn’t be telling you about it if we didn’t think it was a better choice than your other options. 

Here’s how you can get an assessment of your risk exposure (to any sector) for a fraction of the time using Magnifi.

How to use Magnifi for risk assessment

  • Create a Magnifi account ($14/month after a free 7 day trial).
  • Link your investment accounts with secure Plaid integration.
  • Select “insights” and review Magnifi’s findings. The added bonus here is you’ll see overexposure to any asset class, not just commercial real estate, immediately. 

That’s it. From our tests the whole process shouldn’t take more than 5-10 minutes. If you can brute force your own assessment in less time, please reach out to us; that’s a story we’d love to share. 

You can sign up for a free trial of Magnifi here. Any insights you gather in those first 7 days you can consider on the house.  

How to reduce your exposure

If you’ve gone through one or both of the choices above and found a significant percent of your investments are in commercial real estate, it might be a good time to reallocate. 

With the Magnifi route, you’ll receive custom recommendations which will likely be the most efficient course of action. 

If you brute forced it, or simply prefer a different reallocation method, you have a number of options to pursue. The obvious choice is to spread out some of those commercial real estate investments into other parts of your portfolio. Keep in mind, selling off a significant dollar amount of any investment will have significant tax implications. 

You can also keep whatever you sold off in cash. If you choose to go that route, we recommend checking out our article on 4 high yield money accounts to make sure your money is still generating returns. 

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