Stable income, capital preservation and growth are all key investment objectives, but in a changing market with softening capitalization rates, how does the prudent investor create additional value? There are many ways this can be achieved. We’ve all heard of value-add properties being the key to future values, and our favorite quote we’ve heard so many times “the best way to create value in real estate is to have bought it a long time ago” remains true, but with the opportunity of an increasing supply of value added properties, here are the key identifiers to look for:
Below Market Rents; Projections indicate that rental rates are likley to show signs of modest deterioration during the remainder of 2008 due to weakened leasing fundamentals such as increasing vacancy. Look for assets with 20% or higher vacancies and below market rents which offer rebranding and repositioning opportunities.
Multiple Buildings Assets; when times favored a price/cap rate relationship which yielded higher returns, some investors took advantage of this to acquire multiple buildings under a single ownership. In doing so they sought to benefit from economies of scale by consolidating their portfolio and reducing ownership, maintenance and property management costs. Today, rising construction costs make these assets ripe for the value-added investor, the key identifiers are properties priced below replacement cost exhibiting physical not structural deterioration, vacancies, and below market rents. The likelihood that vacancies will continue to rise in these building is greatly increased as frustrated tenants pack their bags and relocate to better maintained properties. Additionally, look for opportunities to sell one building to an existing tenant, and retain one or more buildings for repositioning through capital improvements, increasing occupation rates and net operating income.
Condominimization Projects; The average cost of purchasing a building can be a hurdle to many small to medium sized businesses. However, current low interest rates and the ability of the owner-user to hedge against rising long-term leasing costs are a compelling selling point. As an owner-occupier the buyer can maximize tax and depreciation benefits, and control costs by deducting expenses such as loan payments, property insurance, property taxes and maintenance costs. These benefits to the owner-user have largely been the fuel that has provided investors opportunities for wealth creation through acquiring well placed assets for conversion to condominium projects and selling the condo units to the buildings existing Tenants. Look for newer construction that meets codes with minimum capital investment, buildings with curb side appeal, address recognition and existing tenant retention where occupants are likely to have strong interest in purchasing their suite. Offer potential buyers a competitive financing solution to allow them to realize their ownership objectives, a guide to structured financing packages is included in this blog.
To discuss your investment goals, contact Mark Hinkins t.925.274.2439 or mark.hinkins@grubb-ellis.com
Below Market Rents; Projections indicate that rental rates are likley to show signs of modest deterioration during the remainder of 2008 due to weakened leasing fundamentals such as increasing vacancy. Look for assets with 20% or higher vacancies and below market rents which offer rebranding and repositioning opportunities.
Multiple Buildings Assets; when times favored a price/cap rate relationship which yielded higher returns, some investors took advantage of this to acquire multiple buildings under a single ownership. In doing so they sought to benefit from economies of scale by consolidating their portfolio and reducing ownership, maintenance and property management costs. Today, rising construction costs make these assets ripe for the value-added investor, the key identifiers are properties priced below replacement cost exhibiting physical not structural deterioration, vacancies, and below market rents. The likelihood that vacancies will continue to rise in these building is greatly increased as frustrated tenants pack their bags and relocate to better maintained properties. Additionally, look for opportunities to sell one building to an existing tenant, and retain one or more buildings for repositioning through capital improvements, increasing occupation rates and net operating income.
Condominimization Projects; The average cost of purchasing a building can be a hurdle to many small to medium sized businesses. However, current low interest rates and the ability of the owner-user to hedge against rising long-term leasing costs are a compelling selling point. As an owner-occupier the buyer can maximize tax and depreciation benefits, and control costs by deducting expenses such as loan payments, property insurance, property taxes and maintenance costs. These benefits to the owner-user have largely been the fuel that has provided investors opportunities for wealth creation through acquiring well placed assets for conversion to condominium projects and selling the condo units to the buildings existing Tenants. Look for newer construction that meets codes with minimum capital investment, buildings with curb side appeal, address recognition and existing tenant retention where occupants are likely to have strong interest in purchasing their suite. Offer potential buyers a competitive financing solution to allow them to realize their ownership objectives, a guide to structured financing packages is included in this blog.
To discuss your investment goals, contact Mark Hinkins t.925.274.2439 or mark.hinkins@grubb-ellis.com