When is the Right Time to Invest in Commercial Real Estate?
Commercial Real Estate has historically been a powerful and relatively stable investment vehicle for those seeking to preserve their wealth while growing their portfolios. As the number of investors seeking direct co-investment into real estate continues to rise, so does the opportunity to allocate capital on a deal-by-deal basis. Add this to a steadily growing economy, interest rates remaining at historical lows, and commercial lenders willing to do whatever it takes to win borrowers’ business – there is no better time than NOW to invest in Commercial Real Estate.
However, we’d be remiss if we didn’t acknowledge that we are in the tenth year of the longest economic expansion in US history with a recession feeling imminent. The bottom has to fall out at some point, right? Some industry insiders go so far as to say if you haven’t already invested in commercial real estate, you’ve missed the boat, while others believe there are “recession resistant” investments still available. In our opinion, it’s just a matter of being smart about the investments you consider.
When “those in the know” are taking such diametrically opposed positions on the state of the commercial real estate market, it leaves investors with a question of what to do. Here’s the good news – whether you’re bearish and think we’re heading for a pullback, or a bull and believe this economy will continue to have legs, NOW is a great time to invest in commercial real estate.
Here are five reasons why:
1) Increased Demand for Office Space
With unemployment at 3.6% (the lowest it’s been since 1969), a maturing millennial generation entering its prime earning years, and corporate giants growing larger, the demand for more square footage is apparent. Look no further than the current Fortune 500 list. Last year, America’s 500 largest companies pulled in $13.7 trillion in revenues – more than two-thirds of the entire US economy. As companies continue to expand, their demand for commercial real estate to house their businesses will also grow.
2) Ongoing Cash Flow
One of the most important benefits of commercial real estate is the cash flow generated from rents. Secured by leases, commercial real estate investments can deliver consistent, passive income; income that comes in regardless of market cycle. We mentioned above about being smart with your investments, and at Excelsior Capital, we further mitigate cash flow risk and increase ROI by investing in office buildings with multiple tenants. This dynamic prevents any one tenant from dictating all of our cash flow if, for example, that tenant were to leave the building at the end of their lease.
3) Hedging Against Inflation
During times of rising inflation, savvy investors may seek to hedge against it by investing in commercial real estate. Commercial property values are typically based on operating income and market capitalization rates. In general, when inflation occurs, rents rise. This rise leads to an increase in operating income, which subsequently results in an increase in property values. As you can see, this relationship allows commercial real estate to serve as a strong hedge against inflation.
4) Low Volatility
Simply put, many investors may choose commercial real estate investments because they are tangible assets with inherent value. What’s more, the low volatility of direct investments in commercial real estate can serve to counteract other, highly volatile assets in your portfolio. The counter-cyclical nature of commercial real estate, coupled with low correlation to other asset classes (when invested in directly), can act as a defensive position during times of economic pullback. Over the long term, the value of real property in the US – including commercial buildings – has consistently gone up.
5) Appreciation Potential
Under the right ownership, commercial assets are likely to appreciate in value. This implies that there is potential to garner additional returns when an asset is sold. At Excelsior, our primary focus is on capital preservation and stable income. Through our ownership strategy, we strive to create yield by leveraging current demand and maintaining high occupancy. Our approach is to drive growth in property values organically by steadily increasing rents with high quality tenants.
Commercial real estate offers investors stable cash flow, appreciation benefits, and substantial tax advantages when compared to other popular asset classes. What separates Excelsior Capital from other private sponsors and publicly traded REIT’s is our pure-play, individually syndicated asset platform. We believe we’ve created an investment return profile that far exceeds its incurred risk. We deploy capital on a property-by-property basis allowing our investors full transparency, reduced fees, and the ability to pick and choose the deals they want to participate in. The end result for investors is a custom real estate portfolio that is tailored to fit their needs.
The time to invest is now. If you’re interested in taking the next steps and learning more about Excelsior, get in touch with us today.
Louis O Connor is the Founder of Strategic Metals Invest, which is currently the only business in the world offering Rare Earths as physical assets to private investors.
Teddy Himler is a Venture Capital Partner, running a fund at Antler that focuses on what he calls emerging tech ecosystems.
Dwayne J. Clark is the Founder and CEO of Aegis Living. With more than 37 years of senior housing experience, Dwayne is nationally known for redefining the industry.
Diana Chambers is a highly respected Family Wealth Mentor and Philanthropic Advisor who established her business in the US in 2002 and subsequently in Switzerland, where she now resides.
A real estate private equity firm that owns and operates high quality multi-tenant office assets in emerging secondary markets.
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