Here's the Who, What, When, Where & Why of Finding Value in CRE in 2021
Looking for investment real estate in 2021? Here’s a primer on the who, what, when, where, and why that you need to know…
No surprise – in 2021, you’re going to need to mix it up. So, I’ll mix it up and start with what:
What property type will deliver above-market returns?
- Class B and C buildings that are old, partially empty, and unique
- Good real estate with non-investment grade credit tenants
- Assets, where there are below-market rates, are great opportunities
I continue to like industrial in 2021 – particularly Class B industrial – however, I believe that there’s potential to find above FMV deals in office and retail. Especially where there is good real estate that has below-market rates, and the potential for working with distressed tenants.
Also, I am seeing value acquisition opportunities in assets that have high management needs, shorter-term leases, and contamination needing to be remediated.
Hands-on buyers should give-up on finding deals in CLT and look in locations unrecognized by institutional buyers. Areas such as those slightly outside of Charlotte – ideally south of the border or into areas that clearly cannot be called Charlotte. Roll-up your sleeves to find deals in places like Gastonia, Statesville, and Concord.
Keep in mind that while industrial is hot right now, retail and office assets have been punished. For hands-on buyers, there’s an opportunity in the areas that are unrecognized by national investors.
The first 6 months of this year are going to create the best opportunities for value acquisition that we’ve seen in a long time. The conventional wisdom of the people that I listen to is that by the 4th quarter our economy is going to come roaring back. Any buyer who can close quickly in the next six months will be able to make a below FMV deal.
Why invest in CRE now? The short answer is that nowhere else can the hands-on investor get similar returns.
Experts are projecting that there will be a 10x increase in investors pursuing yield through alternative investments like commercial real estate over the next 5 years. Huge institutions are chasing CRE deals in Charlotte. These investors know that they get superior returns for similar credit, high-quality new assets in markets such as NYC.
Who is your competition as an investor in 2021?
- They are professional buyers.
- They are coming in from overseas, Europe, or Asia with low-low yield expectations, eager to place money on assets occupied by well-known brands.
- They do not fool themselves into thinking that they will find “off-market” transactions – they are eager to bid on brokered deals, which are 90 percent of deals closing these days.
The good news is that there are good deals to be found around the Carolinas. At Cardinal, our clients navigate this market to find valuable properties. Cardinal clients benefit from having a complete understanding of the seller’s circumstances. As a result, Cardinal clients compete on solutions, not only on price. Often we are presenting opportunities to our clients before they come to market.
Are you interested in learning more about how you can find value in commercial real estate in 2021? Respond to this email or call John Culbertson for a consultation at 704-953-5500.