Investors have their checkbooks ready, ready to go on a buying spree if interest rates continue to fall. commercial real estateespecially, has been eliminated recent years.
combination Discounted properties with low interest rates are an attractive proposition for many investors. Still, it’s crucial to understand how you’re spending your money and assess your risks before calling a broker. Here are some commercial asset real estate categories worth considering.
aging office building
Amid all the negative news about vacant downtowns and remote work, the mere mention of buying an office building might shock you. want to Avoid. However, if you have deep pockets (tens of millions and up) and the ability to think long-term, these are well worth looking into.
First, offices currently offer the most significant discounts among commercial real estate. Second, the urban doomsday cycle—as often happens in business districts referred Won’t last forever. Actually, Office building leasing has been increased exist New York and san franciscosome of the worst-hit urban centers. Manhattan office leasing in May increased by 70%making 70% discount offer The predictions made by savvy investors at the height of the doomsday cycle looked prescient.
Repurposing apartments and data centers
The third thing worth considering is the purpose of these buildings future. Remote working is likely to continue to impact the number of people commuting into cities. However, repurposing some office space can provide these buildings with alternative revenue streams and new life.
The most dangerous and expensive adaptive use is converting them into apartment complexes. This strategy could prove a winner, however, as the housing crisis looks set to plague the United States for a long time. According to analysis by RentCafe, 55,000 offices are currently expected to be converted into apartments in major cities, a record high.
Another less expensive option is to convert an office building into a data center. There is a firm need for data storage due to public use internetmobile phones and artificial intelligence (AI). Technology companies such as Alphabet’s Google, Amazon, Meta Platforms and Microsoft – known as hyperscaler— Devouring data like a whale devours plankton.
The global managed data center market is expected to grow at a compound annual growth rate (CAGR) of 11.3% from 20201-2026, while the hyperscale market is expected to grow at approx. Compound annual growth rate of 20%.
Demand exceeds supply and the need for easily accessible storage is critical. Still, the office boss can’t seem to open a door to an empty floor and stack hard drives inside. Advanced HVAC and air filtration systems Requires installation, as well as security and new layout.
benefit? tenant Always showing up and the demand for space is high. The disadvantage is that the conversion rate is lower Not cheap.
Rental apartment gone bad
As interest rates drop, apartment complexes find themselves in a tight spot. according to wall street journalmore than $80.95 billion in apartment mortgages may soon be dangerousMore than $66.87 billion in non-performing office building loans, according to real estate analytics firm Morgan Stanley Capital International.
The question is the revenue generated by the building Barely enough to meet interest payments. Specificallyapartment flippers Those who received short-term, high-interest, variable-rate bridge loans have now adjusted to higher rates. Many of these properties were purchased The Sun Belt Before Interest Rates Rise up. as BiggerPockets investigatedmany investors have already lost money a lot of money.
Fed rate cuts are not enough
For many construction companies relying on COVID-19-era interest rates as a profitable financial model, the Fed’s projected interest rate easing is not enough. as wall street journal The article explains that in 2021, guaranteed overnight financing rates, Which yes Commonly used Pricing on floating rate loans was around 0.05% compared to 5.33% today.
With no money to pay for repairs, many tenants fled for their lives and the apartment complex floated listlessly like a rudderless ship, waiting to be rescued. Howeverso farMany banks have been reluctant to foreclose, hoping rising rents and a recovering housing market will energize them. this Might be wishful thinking, in which case these can provide great Offer investors discounts to purchase.
medical office building
Medical office buildings (MOBs) have traditionally performed strongly due to continued demand for themespecially as the baby boomers age. US drug market expected achieve US$24.18 billion in 2024 and US$37.02 billion in 2029. Additionally, profit pools for physician offices, healthcare services, and technology expected Growing at a compound annual growth rate of 7% US$583 billion in 2022 and US$819 billion in 2027.
if you Not gone yet When you go to the hospital for medical care, you probably go to MOB, which is the center of a network of doctors and hospitals that provides wide The scope of patient needs. While some medical centers choose to purchase these buildings themselves, many also lease them. Demand in this real estate sector has Been there grow quickly Since the pandemic, many investors have sought to diversify their investments.
Long term lease, economic headwinds
Investing in a MOB requires extensive research to best judge demand, demographics and accessibility to transportation hubs. one of the maximum Advantages are long-term lease agreements with healthcare providers that allow for predictable cash flow. Protection against economic fluctuations also allows these asset classes to offer really Low risk passive income. In fact, every year national health care expenditures expected reach close Will reach US$6.8 trillion by 2030.
Five low-barrier-to-entry commercial real estate opportunities that are often overlooked
one great The advantage of commercial real estate is that it can Chapter 1031 Exchange One asset is used for another asset. With this in mind, the ability to generate cash flow from multiple property types is endless. If you buy commercial real estate and want a property that is less labor intensive or has a lower barrier to entry, here are some of the types of investments you might make no Know.
1. Flexible warehouse
A flex warehouse is a single-story metal building that can accommodate multiple tenants and can be as small as 1,500 to 2,000 square feet. There is great demand for the flexible warehouses offered combination storage and office space, allowing the company to acquire necessary low-cost industrial space while growing and fine-tuning its supply chain operations.
2. Parking lot
Parking lots are low maintenance investments that is due to exceeding 282 million vehicles Currently on the way. if you want one completely With passive investing, you can rent out the entire lot to a third-party operator. Dynamic pricing can help you adjust your fees accordingly to maximize your ROI.
3. Self-storage
Competition in self-storage has become increasingly fierce in recent years. as housing Affordability remains an issue, with residents increasingly looking to live in smaller homes and store essentials elsewhere. This asset class is expected to be in demand in the coming years.
4. Senior living facilities
Senior living facilities are another asset class you can tap into choose Fully leased to third party players for purely passive investment or as a partner as a financial backer. As the population ages, the need for long-term residential facilities will continue to increase.
5. Cell phone towers
Cell phone tower Has been built Specific land designed to accommodate wireless tenants. The quest for the best cell phone coverage is extending to cheaper rural land, which communications companies are more than happy to lease to you for another simple, passive investment.
final thoughts
Lower interest rates mean great buying opportunities in the commercial sector. Catching the right type of opportunity at a low price can be the source of huge cash flows for years to come. Whether you purchase a building and lease it to a business, or become a partner/sole owner of the business yourself, the opportunities are endless. However, you must choose an asset class that is in high demand for your space to ensure continued income.
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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
