Archives for June 2019

What’s Attracting High Net-Worth Investors to Value-Add Assets?

June 25, 2019 by CARNM

A recent survey by RealCrowd revealed that 80% of high net-worth investors are planning to invest in value-add real estate as part of wealth-management strategies.

A recent survey revealed that 80% of respondents are planning to invest in value-add real estate as part of wealth-management strategies. RealCrowd recently completed the online survey of high net-worth investors.
The survey indicated these investors are also focusing increasingly more on secondary and tertiary markets to source these deals, and are relying heavily on direct online real estate platforms to do so. GlobeSt.com spoke with Adam Hooper, co-founder and CEO of RealCrowd, about his insights into the survey’s most interesting tidbits.
GlobeSt.com: What are some of the key takeaways from the survey?
Hooper: We found that high net-worth investors are growing more interested in value-add real estate assets to diversify their portfolios and build wealth. As the focus of development in the real estate industry today is leaning more toward redevelopment and value-add plays, we are seeing increased demand from investors for these assets and opportunities.
The survey also revealed that that 47% of respondents want to allocate one-quarter of investment portfolios to commercial real estate, which demonstrates their affinity for and trust in the sector as a stable investment category. And we learned that nearly three-quarters (72%) of respondents are seeking transactions in secondary markets, while 64% say they have no regional preference for their investments. That speaks to the high level of competition for strong deals in primary markets, which is a sign of the industry’s good health.
Regarding asset class, we found that high net-worth investors rank multifamily at the top of their real estate investment preference lists, with industrial coming in second, followed by funds, office, hospitality and retail properties. These preferences more or less align with industry trends across all investor groups.
One result that we as an online direct investment platform were happy to see was that nearly four-fifths of respondents (79%) said they choose to invest in real estate directly through an online platform like RealCrowd. To me, that indicates we’re hitting the mark in meeting investors’ needs.
GlobeSt.com: Why are investors shifting focus to value-add assets?
Hooper: Value-add assets provide a tremendous opportunity for investors to invest in less visible, a.k.a. not core and less expensive properties, and increase ROI after improving them. From simple cosmetic upgrades to complete redevelopment projects, these improvements can result in significant gains in property values and rental rate revenues for these investors, which is why they’re so appealing. Investors also tend to feel good about buying an asset in need of updating and improving the appearance and functionality of it. These deals can make a real difference in the lives of those who use the real estate as well as the surrounding community, so value-add assets have strong appeal for social-impact investors.
GlobeSt.com: What markets are they finding most desirable?
Hooper: At this late point in the real estate cycle, investors are focusing on markets that exhibit the big three metrics in choosing properties: population growth, job growth and supply constraints. They’re considering markets like Charlotte, Seattle, Denver and Portland that are attracting Millennials interested in furthering their careers. They’re also zeroing in on local markets in places like Phoenix, San Diego and other parts of Southern California where Millennials like to live. Many of these markets feature geographic boundaries that limit the availability of land and opportunities for expansion, which make them more desirable.
GlobeSt.com: Based on the survey, there is a growing number of investors investing online. Why do you think that is?
Hooper: To be fair, the fact that the respondents were answering an online survey and therefore were more likely to choose direct platforms as a method of investing is partly responsible for that survey result. But in truth, just about everything in life these days has a digital component, so why not commercial real estate investing? Investors like the level of transparency these deals offer them, the amount of time it saves them over other investment methods, the convenience of doing their market research, due diligence, and transacting whenever they like and wherever they happen to be, and the amount of control they have over these investments. They also feel that they are benefiting by cutting out the middle man, which saves both time and money. The number of investors who choose direct investing through an online platform like RealCrowd will only continue to grow as technology evolves and investors seek to gain even more control over their portfolios.
By: Lisa Brown (GlobeSt)
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NAR Joins HUD Opportunity Zone Meeting

June 21, 2019 by CARNM

On June 20 NAR participated in a Department of Housing and Urban Development (HUD) Policy Development & Research Stakeholder “HUDdle” on Qualified Opportunity Zones (QOZs). HUD Secretary Ben Carson, who is Chair of the White House Opportunity and Revitalization Council, gave the opening remarks, and he highlighted the goal of the program to draw long-term investment, jobs, and economic growth to the distressed communities designated as QOZs. He shared that the Council has identified 160 programs across more than a dozen federal agencies to increase targting to QOZs, such as fee reductions and grant programs. In addition, he shared that the Federal Housing Authority (FHA) under HUD has created new incentives for multifamily property owners to invest in QOZs, including waiving application fees and creating a team of experienced underwriters dedicated to working with QOZ investors to speed the process along.
Following Secretary Carson’s remarks was a panel of QOZ and community development experts from several organizations: Novogradac, the Economic Innovation Group, the Maryland Department of Housing & Community Development, the U.S. Impact Investing ALliance, and the George Washington University. Their remarks highlighted the optimism there is surrounding this new program and the potential it holds to improve communities. They cautioned however that in order for QOZs to be truly successful, there needs to be thoughtful planning around investments and what types of developments are being pursued, in order to lift up the communities without displacing current residents. To that end, they recommended that local governments and community groups work together to create plans and recommendations for QOZ investments, and possibly come up with further incentives for them. They also pointed out the need for data reporting requirements, in order to track how much money is being invested, where it’s going, and what type of projects it is financing, as well as how many jobs are created and what the impact is on residents. To that end, the Treasury Department and HUD have both requested feedback on data reporting requirements for QOZ investors.
Rules for the QOZ program have not been finalized by the Treasury Department yet, but proposed rules – released in October 2018 and April 2019 – are in effect, so the program is officially open for participation.
By: Erin Stackley (NAR)
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As the Number of Renovation Projects Rises, Older Properties Are Set to Challenge New Office Construction

June 19, 2019 by CARNM

The 1980s era office buildings have the greatest potential to draw back tenants from the newer office properties.

Office buildings constructed in the 1980s are facing the biggest challenge from the newer properties coming on the market today, but can also best withstand the competition if they are properly renovated, according to industry experts.
In gateway cities around the country, including Boston, Los Angeles and Chicago, the story appears to be similar to the one playing out in Manhattan’s Hudson Yards, according to Tim Johnson, partner at NBBJ, a global architecture firm. The 1980s saw the biggest office construction boom before the current one. “A lot of those buildings were designed… in this post-modern style. The[materials], design aesthetic are some things that aren’t really attractive today,” Johnson says.

The existing stock of U.S. office buildings can be separated into four categories—those built in the roaring 20s, the 1950s late modern era, the 1980s post-modern era and the present era, according to Johnson.
“I would say that the [post-modern era] 1980s buildings have, certainly, a little bit more robust systems,” says Johnson. “They’re designed in ways that are a little bit more flexible.”
The newer office buildings coming on-line are attracting tenants with their open floor plans, ample meeting spaces and food and beverage amenities such as coffee bars. But 1980s era buildings with a “more advantageous location can challenge a newer building by modernizing [their] space, layout and amenities,” according to Matthew Schreck, senior quantitative strategist with real estate online marketplace Ten-X Commercial.
“A key for competitively renovating and retrofitting older office buildings is space efficiency. Older buildings often have space dedicated to now obsolete uses like libraries, document storage or inefficient layouts,” says Schreck. “Not all tenants will be looking for open office layouts, but they’ll want to be taking advantage of all the square footage they’re paying for.”
Modern office buildings are designed to contain one worker for every 150 sq. ft., late modern era office buildings were designed for one person for every 300 sq. ft., while 1920s era office buildings allow for one person for every 400 to 500 sq. ft., according to Johnson.
This density means modern buildings are designed to accommodate more people, with more toilets and elevators, to go along with more open floor plans.
Projects to renovate post-modern buildings can cost millions of dollars, but that is still a cheaper alternative than starting construction from scratch. A new office construction project normally costs in the hundreds of millions of dollars, and takes approximately four-five years to complete, according to Johnson.
A renovation project, on the other hand, usually takes around six months to two years, depending on the size of the undertaking, Johnson notes.
“I’d say general life expectancy [of a building before it needs renewals] in today’s world is about 30 years, and I’d say the trends are happening a little bit quicker than that, just because of technology and demographic change,” he says. “To keep attracting the rents is really crucial, and so, if you don’t make those investments, your rent rates will go down, or your vacancy rates will go up.”
But even if U.S. economic growth stagnates, the rate of office building renovations will likely increase for two reasons, according to Johnson. First, landlords look to increase their property’s value during a market downturn so when the market does come around, the asset is ready for absorption. Second, the price of renovating an asset is cheaper than building a new project from scratch.
“Renewal projects are already growing in number as outdated or under-utilized spaces are updated to meet the current demands of the market,” says Schreck. “This is something we do expect to see more of as outdated industrial spaces, suburban office buildings and dead malls, in particular, are redeveloped for more in-demand uses like mixed-use developments, hotels and experiential retail spaces.”
By: Sebastian Obando (NREI)
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Catylist Unveils Commercial Exchange Integrated with Moody’s Analytics

June 18, 2019 by CARNM

The latest national CRE marketplace originally sources all of its listings as the search engine platform industry heats up.

Commercial real estate technology provider Catylist recently announced the launch of Commercial Exchange—a national CRE marketplace where users can search available sales and leases. Commercial Exchange says it only focuses on listings that have been recently verified.
Partnering with Moody’s Analytics, each property listed on Commercial Exchange includes a Commercial Location Score, which allows lenders, CRE investors, and developers to evaluate each parcel’s potential and suitability across the five major commercial property asset classes of retail, office, multifamily housing, hotels and industrial. Each numeric score takes into account component factors for the location including economic prosperity, business vitality, spatial demand, amenity, safety, and transportation.
It has over 200,000 listings.
“Our goal with Commercial Exchange was to create a marketplace with reliable data and easy-to-use features that’s truly accessible to all, whether you’re a commercial real estate broker, an investor, or a tenant searching for available space,” says Catylist CIO Allen Benson.
This latest addition to the proptech industry allows users to search quickly and efficiently on a map with radius and drawn shapes, save searches and receive immediate property alerts, access details and generate one-click reports for any property in the country and view listing traffic plus track leads.
Benson believes that geospatial elements, mapping and property boundaries are all relational to the market and those data points will impact the viewer’s assessment of the properties. “Our goal is to help brokers across the country tackle their toughest challenges and make better, faster decisions.”
By: Tanya Sterling (GlobeSt)
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