Good investment opportunities in real estate are abundant. This means that narrowing your target is vital to your success in finding the best deals. The focus of this article is property valued at $1,000,000 – $10,000,000 (standard business banker/commercial lending market), multi-family residential, and multi-business office space, and small scale mixed use office space, primarily located in renovating and emerging neighborhoods. The only geographic limitations of this analysis are the 48 continental states of the US.
These are fairly broad parameters, but the rules for finding properties and making acquisitions are very similar within this “Small Cap” commercial real estate space. For our purposes, we’ll refer to the space as SCRE. Borrowing options and underwriting guidelines are very much the same for all properties within the SCRE. Issues relating to zoning, planning, taxes, etc. tend to be consistent, albeit perhaps consistently arbitrary. Persistence pays when dealing with administrative agencies! Internal rates of return vary, but so do the means of measuring them.
A good deal is truly an art. You have to get a feel for what makes it work. Better yet, you might want to develop a feel for your personal “deal breakers”. You may not want a deal that is in certain types of areas – too newly developed, overdeveloped, underdeveloped, brownfield, recovering, etc. You may want deals in blighted areas that other investors eschew for opportunities in more pristine properties. You may not have the tenacity or staying power to endure long, drawn out zoning, planning and architectural fights. If you do, you may win big in the end, but it just may not make sense for you. REO properties – interested? Or maybe you never touch them.
These are all personal choices and decisions. Investing in real estate is always a creative art. But it’s an art based on some precise mathematical formulas and principles of investment discipline that make for long term success. One thing that attracts investors in real estate is the opportunity for immediate, recurring income you often can’t attain in other investments. This benefit lends itself to enabling crowdfunding investments in real estate over and above crowdfunding for other types of companies.
One very interesting development in real estate investing since the 2008-2009 market crash is how many investors are now looking beyond local markets to make investments elsewhere. “Value investing” has very much become the trend in commercial real estate in the last 7-10 years. Buyers have historically, but now more than ever, are looking for the best priced real estate to acquire. This presents some interesting questions about how an investor finds such deals. Below are a few thoughts.
Foreclosures – this is obvious. Commercial foreclosures are down the last few years, but not nearly as dramatically as residential foreclosures. Retail properties in particular have fallen on hard times. Shopping malls are closing and even newer strip retail developments have been failing. Finding properties in foreclosure is easy in most states. Typically you can look at online dockets and other resources, as well as REO directory listings to find out what is available. Landmark Advisors offers significant help in identifying and finding available REO properties.
Tax sales are very similar to foreclosures except they can typically be had for a significantly reduced cost – even below foreclosure costs. The key is whether you have the patience and persistence to wait out the redemption period on a purchase.
Receiverships and bankruptcy trustees provide yet another opportunity to find good values in real estate. These are sources of issues where it is often true that good deals have gone bad – and the turnaround time for an acquisition may be, but is not necessarily, significantly compressed.
There are many other means of seeking and finding good options for a value oriented acquisition of real estate. Most important, however, is to always set and maintain the discipline of your investment objectives. Never buy anything that won’t achieve the investment returns in the manner you seek.
Landmark Advisors has nearly 30 years of experience with commercial real estate transactions. IF you’re considering a purchase, particularly anywhere outside your own local market, contact us to discuss how we can help you identify and close on the next property you would like to own.