Challenged by rising interest rates, a sometimes staggered economy and empty office space buildings, commercial real estate (CRE) investment has become a game for the haves and the have-nots.
If you have cash, there are opportunities across the country, and if you’re looking for funding, there are still some deals out there if you’re counting on rates dropping later.
But the question for investors remains — are there still good CRE deals to be had in this economy? Benzinga posed that question to Obermayer attorney Michael Thom, who specializes in public and private financing of commercial real estate properties and is based in the Philadelphia area.
Benzinga: Let’s start with some of the hotter investment strategies right now — what are you seeing come into your office?
Thom: The value-added stuff is always popular, whether it’s office space, commercial or a warehouse. The real value comes when interest rates go down and first-time developers get in. Unfortunately, because the rates are higher, a lot of people are trying to get out, so that’s where someone with cash who understands the market steps in and gives them that out. We are also seeing people come in with single-use properties, which are less risky. If they find a tenant, they proceed and if not, they can easily back out. If you find a single stand-alone like a warehouse or industrial site and get a single tenant, you can potentially double your investment.
Benzinga: What about those who have cash on hand right now?
Thom: There are CRE developers who have been around forever and understand the market fluctuates, and even though rates right now are higher, if they find a good property, they don’t care what they pay because when the market corrects, they can get a steal.
Benzinga: What about all the empty office space? Are there actually deals out there?
Thom: Yes, because if you can get a good deal and have a good team in place, you can still find companies to come in. If you want to transition to residential or mixed use, that depends on what kind of zoning relief you can get. If you turn it into apartments, there’s some good money there but only if the municipality allows it to happen. There are some places you can get the land and the building for nothing. In other places, potential rents would make it worthwhile.
Benzinga: Benzinga has found that the warehouse and industrial sectors outperform all others in the CRE market. Have you seen the same?
Thom: Yes, 100%. Warehouses are going up everywhere right now. Unfortunately, some people thought that if they built one, they’d get Amazon and FedEx to use it. That hasn’t happened.
Benzinga: What’s hot in Philadelphia right now?
Thom: A little bit of everything. Warehouse and industrial, as well as single-tenant buildings, are flying. Some of my clients are buying office space, but most of them are only buying for a specific use and they already have companies ready to move in. We aren’t seeing investors buying a property because they just want to get into the market.