As investors roll into 2013 in search of new commercial real estate acquisitions and opportunities it is important to recognize that while the outlook is brighter it is those wired in to the emerging trends which are shaping the market that will ultimately get more of what they want and enjoy better returns.
So where are the challenges and best opportunities ahead for commercial real estate investors?
Commercial Real Estate Financing
While the secondary market is getting busy, debt investors are hot on commercial loans and originators loosen up to compete for the best loans and most volume it’s hardly the liquid market seen in 2004 yet.
Even for those who don’t necessarily need to borrow the advantages of leverage for diversifying are clear, especially in the current low interest rate environment. While those who are struggling to raise the capital they need shouldn’t be discouraged as crowd funding emerges as an attractive vehicle for both borrowers and lenders.
Crowdfunding is the perfect solution for both the average Joe looking to benefit from the tax and higher return advantages commercial real estate offers while those on the receiving end get easy access to capital.
So whether looking into industrial real estate, office leasing or multifamily it may well be wise to explore your options for raising funds from the crowd.
New Construction Surge
The surge in new residential construction has stayed in the limelight in the media over the last year as builders’ confidence grows and market improvements expand across the country.
New home builders are currently unwrapping plans for dozens of projects this year, boosting the local economies they are building in and attracting more affluent residents. This offers commercial real estate investors on the hunt for acquisitions a unique opportunity for benefiting from the positive residual effects new home construction provides by moving in nearby.
At the same time commercial real estate construction is also surprisingly taking off with the northeast boasting a 7.62 months’ worth of backlog work according to Commercial Investment Real Estate Magazine. The publication’s new market trends report anticipates a 5.2% increase in construction spending in 2013 as a whole and a 10% leap in the office sector specifically.
However, it is also worth noting that constructions loans (of all types) continue to make up the biggest percentage of non-performing mortgages and bank owned REOs. For the more creative investor and deal maker this offers an excellent opportunity to negotiate some pretty attractive terms on acquisitions over the next few months.
Finding Value
A recent survey of global commercial real estate investors revealed that over 80% planned to increase investment in the U.S. this year. While many are looking for yields, 55% of these investors voted America as the top spot for capital gains as well.
Obviously some may find the market more confusing than ever these days, especially when it comes to valuation. While we may see all real estate in and around Worcester, Mass. get a lift this year those who dig deepest to build in a good position from the start have the lead.
While there are some apparently easy opportunities for negotiating great take overs, it is also wise to analyze the prospects any given property has for adding value through improvements and re-positioning. This may be fairly straightforward and obvious in the multifamily leasing and retail market but there are currently some great opportunities for savvy investors to mark up office buildings too.
This is a pivotal time in the office market. Big corporations are now getting ready to shed a ton of inventory they have in primary markets like Boston and New York and will be increasingly looking for space to rent in markets like Worcester. So a proactive approach to landing these big fish investment grade tenants right now could have a huge impact on returns and long term cash flow.
The evolving workplace and trends in flex space, coworking and telecommuting also offer a number of opportunities for increasing value of holdings as well. However, another recent survey of 7,500 corporate professionals places the top priority for executives this year as focusing on workplace quality. This can run the gamut from better air quality to design flow. What is important is that those who can promote their space as offering the most value in workplace productivity and employee effectiveness will have a huge edge on the competition and command more perceived value.