Should I development commercial properties in a red state or a blue state? How do political and economic factors play a role in my decision making on where to develop?

Should I development commercial properties in a red state or a blue state? How do political and economic factors play a role in my decision making on where to develop?

If you are looking to develop a commercial property from either the ground up or are considering purchasing one that is already built, a major question you need to ask yourself as a business person is how the business climate and environment of the location will factor into the long term health of the commerical property. Here are some key factors to consider concerning your location in regards to its political and economic external surroundings:

1. Stable Political Environment - Ideally you want a location where politics will not ever be a factor that impacts your plaza in any kind of a detrimental manner. If your potential location is located in a hot bed area that is prone to protest marches over a variety of hot button political issues, then you may want to reconsider your choice on this. Having down time due to an external factor like political unrest is not good for occupancy rates as it will inconvenience tenants and likely delay rents or even potentially have tenants abandon their leases and leave. Avoid these types of areas unless you get a bargain so good, that you're willing to take the chance.

2. Economically Blighted Areas - It's the goal of all land and property owners to see long term appreciation for their property values. This is always an added bonus when you go to sell to be able to have a value gain on top of the equity that you were able to build up over time. However, if you choose a location that is seeing declines in population or that has seen an economic crisis due to factories or other businesses and industries vacating then it is very likely there will be no growth in value and worse yet a potential decrease in property values. Try to avoid blighted areas with declining job growth unless you see a potential turnaround coming soon for the area in the very near future.

3. Socialist Communist Political Leanings - Rent control is the death nail to all commercial real estate investors. If you are scouting a location for a commercial plaza that has known laws in place that regulate the rents in an area along with verbally outspoken politicians advocating for these wealth re-distribution measures, then you are best to avoid these places, unless you are a philanthropist who is willing to give away your money. If developing in these type of areas, just make sure to do extra due dilligence so you that you are have no surprises in store for you.

4. High Commercial Property Tax Rates - Different municipalities charge different property tax rates. You ultimately as a landlord want to pass through low tax rates in your *CAM to your tenants so that they are not burdened financially. "CAM" is an acronym short for Common Area Maintenance which is an additional amount of rent a landlord charges tenants that is used to collect money for the tenants percentage share of property taxes, insurance and ground maintenance expenses. These are also sometimes referred to as pass through expenses and a lease that has this component built in is called a triple net lease. There are many municipalities and some states that charge rapacious amounts of property tax to commercial tenants to offset offering very low rates to their residential tax base property owners. Sometimes these property taxes can be as high as 33% of the lease amount a tenant is paying. It's possible to still buy a property with a very high tax rate and still be okay, but..... you'd just better make sure the property is a slam dunk that has ultra high demand. The more expense burden you have to pass through to your tenants, the less likely you'll be able get lease renewals or rent escalations.

5. Homeless Pockets - Homeless area pockets are an extreme red flag to all owners of commercial plazas. High end lease tenants don't like to have this as a re-occurring issue and will avoid leasing in areas like this at all costs. If you are okay with being a commercial slum lord that has tenants like vape shops, liquor stores and smoke shops then by all means buy a plaza near a known pocket of homeless. Otherwise, avoid these like the plague.

6. Rural Areas versus Cities - If the location of your commercial area is in a high traffic hustle and bustle city area, you can usually be assured that your lease space will likely always have a good chance to have placed a new tenant providing its in a desirable location with no issues. It your location is more in the sticks and is rural, you are definitely going to have a lot longer period to fill a vacant space as with fewer potential tenants available. If buying rural, negotiate a better rate to account for the anticpated longer vacancies in between tenants. In general lease tenant rates in rural areas are usually sharply lower than rates in highly populated city areas.

7. Red States versus Blue States - There's no blanket rule here that you're better off picking one polictically leaning state over another in order to invest in or develop a commercial plaza. There are dozens or even hundreds of factors that play into the decision to purchase a commercial property. Geographic location factors can change just by walking one block from one property to another. Try to be comprehensive in looking at all the variables that predict future rent revenues and occupancy rates when making a property evaluation.

Conclusion: External Political and Economic factors of a location are 100% very important to consider when evaluating a commercial property for investment purposes. However, these are not the only factors and its always possible that there could still be enough other potential positives to overcome location deficits and weaknesses. Each property should aways be evaluated on its own merit and not necessarily be cookie cutter judged based on one set of factors alone.

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