Commercial Real Estate – Investors Jumping Back into the Game
With so much uncertainty in other economic markets, real estate is becoming more and more appealing as a long term investment to many investors (both large institutions and small investors) who have previously been reluctant to get back into buying commercial property. However, most of these investors who are beginning to get off the fence are still being very picky about what type of properties they choose to invest their money in. We are seeing that most investors are sticking to either Class A properties with high cash flows or distressed properties priced well under market value, nothing really in between.
Commercial Buyer's are Back
Because future economic trends are still unclear, investors are attributing more value to properties with high occupancy rates and long-term leases over properties that would otherwise present a higher potential cash flow but offer more uncertainty about how financially sound the current tenants are. According to Robert White, CRE, president of Real Capital Analytics in New York, “Occupancy is worth a lot and vacancy is worth little.”
Another factor that has led to an increase in commercial investors is the recent access to new money. Although most traditional lenders still are not lending money outside of conventional guidelines, we have begun to see more lending coming from private parties and non-listed REITs (Real Estate Investment Trusts). In the past, these types of loans would have only appealed to high risk borrowers. However when the major financial institutions shut off almost all of the flow of money into this market segment, they created a void which has recently allowed for these private parties and REITs to flourish and pick up the slack left behind when major lender’s turned off the tap.
In addition to the secure long term gains and access to new funds on the market, the commercial sector also hasn’t been affected by an increase in REO sales when compared to Residential. As lenders have learned over the last several years, they just are not in the business of owning Real Estate. This is even truer for commercial Real Estate, as most lender’s are reluctant to reposes commercial Real Estate from their borrowers. As a result, we have far fewer commercial REO sales than economist originally predicted. There was an initial drop in commercial values during the height of this recession. However since then, values have held up when compared to the overall downturn in most other markets. This retention in values has made commercial real estate a safe haven for investors to put their money while trying to ride out the remainder of the storm.
Related Posts:
Commercial Real Estate Sees Improvement
Buying Commercial Foreclosures
Commercial Real Estate: Alternative Financing
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Joshua Talayka
NAR designated: Short Sale & Foreclosure Resource
Chase International
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