Commercial real estate is a long game
Nearly overnight, “uncertainty” has become today’s buzzword. As the threat of COVID-19 becomes more widespread by the day, we’re seeing the financial markets react and investors question their strategies. As with any significant event that impacts consumer and investor confidence, it’s natural to see individuals and companies take cautious action or delay important decisions. Immediately, and in the coming months, investors may be tempted to adopt a “wait and see” attitude, but those who do risk missing out on opportunities. Below are five key reasons why real estate investing makes sense in today’s market, coupled with expert advice to help you invest with confidence.
Quality real estate is in high demand
If you’re a seller in today’s market, your asset could be in high demand. Recently, there has been an imbalance of supply and demand, as the highest quality properties trade fast. According to Associate Director Katie Elliott, “many of the larger REITs have commented that they still have capital to deploy,” suggesting they intend to remain active in the market.
Another group still hungry for quality investments are 1031 exchangers. A quick shift in market conditions does not erase the desire for tax savings, nor will it stop exchange transactions from occurring in the short term. As investors look to trade out of one asset and into another, savvy buyers will continue to benefit from newly listed, high-quality real estate assets and should be encouraged to pursue those deals with earnest.
Opportunities to diversify
Investment advisors have always recommended diversification as a way to minimize risk, and that advice holds true for commercial real estate investors. If your portfolio is heavily weighted towards a single, specific asset type, now would be a great time to diversify. “Consider purchasing an anchored retail center with a grocery component or other ‘necessity’ retail service tenants,” says Margaret Caldwell, managing director and partner. “These centers are still trading at historically low cap rates, which are expected to remain low regardless of COVID-19’s impact. Investors chasing yield will be able to take advantage of low interest rates and receive highly levered returns by investing in power centers and other multi-tenant retail.”
Pat Weibel, director, echoes these thoughts. “Freestanding grocery and grocery-anchored centers will be very popular in the short-term, as will last-mile logistics facilities. The focus these last few weeks has been on ‘flight to quality,’ but that’s good advice to follow when considering your long-term investment strategy too.” Regardless of the current mix within your real estate portfolio, today’s environment should prompt all investors to evaluate their level of diversification and seek to purchase assets that will help them minimize risk in the long-term.
Source: National Real Estate Investor
Photo/s credit to the owners