Before you go in search of your first commercial lender, you need to determine just which sector of this lucrative investment strategy you are going to invest in. Let’s look at one of the most popular CRE investments—offices—and find out what’s hot for 2018 and where savvy investors are plunking down their chunk of change in order to increase their ROI.
And once you’ve developed a plan, stick to it. Many an investor has let their limbic system, the emotional overriding component of their brain, waylay them from their chosen investment strategy. So, let’s take a look at offices and see if this might just be the CRE investment strategy that you’ve been looking for.
The office building asset class accounts for about 20 percent of the total CRE market. This segment of the market can be volatile, so it’s important to know just what to look for in this arena. The overall economy is an important consideration as well as the projected job growth when choosing a particular market. Look for a declining vacancy rate and a rising absorption rate. Include the surrounding communities in your assessment as they will have a strong impact on your strategy and market. According to Statista, vacancy rates in office space are forecasted to decline from 12.9 percent in Q4 2017 to 12 percent in Q2 2019. In the first quarter of 2017, office space beat out every other segment in commercial construction starts including retail, warehouse, hotels, amusement and parking garages with a whopping 6.6 billion.
Office assets are usually assigned a quality rating, similar to multifamily units. Their standards can vary depending on the local market, but will be important to your commercial lender.
· Class A: These high-end properties are usually recently built or extensively remodeled. They usually have high visibility and are within easy access to major amenities. Core focused REIT and pension funds tend to veer towards this type of office investment.
· Class B: These are usually older buildings that may require some minor renovation. These are fairly popular among commercial lenders, particularly turn-around investors and private equity groups.
· Class C: These generally require some major capital investment for improvements. They are also not in very desirable locations and are typically used for redevelopment opportunities.
And just what cities have the highest rents? Hong Kong is king with a price of $255.50 per square foot. New York City comes in second with a price of $153, San Francisco in fifth with $105 and Los Angeles edging into 10th place with a price of $73.
Co-Working Spaces is a growing consideration in this market.
While this type of office space was once considered the go-to for freelancers and small corps, times have changed. Big businesses are using this type of workspace in order to get their feet wet in a community before relocating. According to U.S. News, CBRE reported that co-working in America is experiencing an approximate five-year compound average annual growth rate of 21 percent.
Some investors are turning to REITs in order to get into this segment of CRE. Both Vornado Realty Trust and Boston Properties include co-working in their portfolio.
There are alternative commercial lenders who can help you get the funds you need for your project. At Level 4 Funding, providing capital for office projects is one of our specialties. We offer loans up to $50 million, 90 percent LTV, competitive loan rates and quick funding. Call us for a no-obligation quote.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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