Visintainer Group & Team Named CoStar’s 2022 Power Award Winners

March 07, 2023 | 

CoStar Group, Inc., a leading provider of commercial real estate information, analytics and online marketplaces, announced the recipients of the 2022 CoStar Power Broker Award, recognizing professionals and firms who closed the highest transaction volume in commercial real estate deals in their respective markets.

For the Fresno market, Visintainer Group was named as a Top Sales Firm and Brett Visintainer and John Kourafas have been recognized as two of the most active local dealmakers in 2022.

Great job, Team!

For more information, visit: https://www.costarpowerbrokers.com/winners/

We’re Growing! Join Our Team of Commercial Investment Brokers

February 18, 2023 | 

Visintainer Group is looking for motivated individuals interested in joining a successful Commercial Real Estate Investment Firm!

Investment Advisor Job Summary: As a Commercial Investment Advisor or a Multi-Family Investment Advisor for Visintainer Group, the goal is to build long-term relationships with investment property owners. Investment Advisors thrive in a fast-paced, high-energy, collaborative environment. This position will assist clients on real estate strategies during the acquisition, hold, disposition, or exchange of an asset. Working within a team-selling environment, you will be given the tools and resources to become a high performing advisor.

Positions Available:

Central Coast Commercial Investment Advisor (this position will be a hybrid of working from the Fresno office and conducting client meetings on the Central Coast)

Central Valley Multi-Family Investment Advisor

Ideal candidates are professional, self-motivated, and will thrive in a positive team environment. For a full job description or to submit your resume and cover letter (specify position of interest), please contact Elizabeth Helon at [email protected]

2022 proves to be record year for retail, multi-family investment sales

February 13, 2023 | 

The Business Journal

At the beginning of the year there was a lot of concern surrounding rising interest rates’ effect on commercial real estate. As it turned out, this looming fear fueled buyers to get into the market and buy at record pace for retail and multi-family properties. In fact, in 2022, the Central Valley saw record cap rates, sales volume, and transactions, based on data provided by The Visintainer Group and CoStar. 

Interest Rates’ Impact on the Market

Interest rates were the main discussion in 2022, so let’s dive deeper into that before reviewing the market data. The 10-year treasury was at 1.50% in January, then slowly climbed to ±1.80% by the end of March. Though not directly correlated with the Federal rate hikes that began in March, investors took notice and the 10-year treasury market shifted quickly — never looking back as it reached 4.20% in October and ending the year in the 3.90% range. For reference, interest rates usually hover around 200-250 basis points above the 10-year treasury. While buyers were able to borrow in the mid-3% range in first quarter of 2022, they found themselves getting quotes around 6.00% in December. This increase played a significant role — higher lending costs forced buyers to pay lower prices, thus increasing cap rates.

Red Hot Multi-Family Market

multifamily graph

Apartment complexes came into 2022 as one of the hottest investment sectors and continued to garner attention through the 4th quarter. The largest deal of the year was the sale of Ascent Townhome Apartments, a 248-unit complex in Fresno which sold for $82 million ($330,645 per unit) — the highest sale price ever for our market! We saw the median price per unit eclipse $100,000 for the first time as well in 2022, with it reaching $112,587. The average cap rate dropped below 5.00% for the first time and we saw an impressive $656 million in total sales volume (second only to the $773 million in 2017). There was a total of 119 transactions that surpassed each of the past two years and falls more in line with pre-pandemic activity. Buyers from other markets in California found the Central Valley as a hot bed to invest after skyrocketing prices for apartments in their markets made it difficult to find investments. 49% of the buyers came from Southern California while 26% came from Northern California — totaling 75% of all the buyers in 2022. It was a huge year for apartment sales and it will continue to be one of the most watched sectors in real estate going into 2023.

Retail Investments Reach Historical Highs

retail sales graph

The retail investment market did not slow down, even as interest rates increased throughout the year. The largest deal of the year was Monte Vista Crossing, a 467,131 square-foot shopping center in Turlock, that sold for $124 million and 7.49% cap rate. With so much liquidity in the market, and a surplus of all cash buyers, the record numbers poured in. This last year didn’t only see the most transactions ever with 306, but also an astonishing sales volume of $1.881B – surpassing the previous peak in 2015 by $160 million. Along with record transactions and sales volume, the average cap rate dropped below 6.00% for the first time as it was 5.61% in 2022. Multi-tenant retail centers reached some notable milestones — 146 transactions, $1.277 billion in sales volume, and the lowest average cap rate since 2007 at 6.46% for the year. The single tenant market saw the lowest average cap rate drop to 5.04%, the second most historical transactions with 160, and third most volume with $604 million. Until cash dries up and more buyers need loans, the retail market will continue to be highly sought out by investors.

5 Commercial Real Estate Trends to Watch for Heading into 2023

October 22, 2022 | 

The Business Journal

As we enter the final months of the year, the future is uncertain for the commercial real estate market as there are multiple factors that can change the landscape of the market in the coming months. Here are five important trends that investors will be watching closely as we enter the final quarter of the year and head into 2023:

 

1. Rising Interest Rates – If you have been following the debt market this past year, you are probably aware of the sharp increases in interest rates that have taken place over the last couple of months. At the start of the year, it was common for investors to achieve sub 4.00% interest rates which help increased market activity. As inflation and recession fears have continued to mount, the debt market has shifted considerably, and interest rates are now well above 6.00%. The Federal Reserve has increased the federal funds rate multiple times this year to combat inflation. In addition, bond/treasury yields, a key metric for CRE interest rates, are the highest they have been since 2007. Over the next couple months, it will be important to watch if interest rates continue to ascend aggressively and if lenders will tighten their loan parameters – both of which can have a significant impact on property values.

 

2. Inflation – Inflation is another key metric to watch over the closing months as it has continued to remain historically high. As a result, this can have a direct impact on the real estate market in a multitude of ways. This includes construction, debt, operating expenses, rent, vacancy, and other items that are related to ownership. As the cost of goods remain high, investors are forced to find ways to mitigate the risk of rising costs. According to the Consumer Price Index September publishing, inflation inched up to 8.2%. If inflation numbers continue to rise or remain stagnant, this can reverberate throughout the market heading into 2023.

 

3. CAP Rates/Property Values – For many asset classes over the last year, CAP rates have been lower than they have ever been, resulting in a seller’s market for many owners (CAP rate = net income ÷ purchase price). For multi-tenant retail in theCentral Valley, Q2 of this year featured the lowest average CAP rate of 6.11% since 2008. At the beginning of the year, buyers were plentiful as interest rates were low and there was a shortage of quality product on the market. As the year progressed, buyer conditions softened, interest rates climbed, and investor sentiment about the economy has grown increasingly uncertain. Traditionally speaking, commercial real estate values tend to lag external changes in the market. Leading into 2023, it will be important to watch if property values decline showing the impact of the abrupt changes in the economy and debt market that occurred over the summer.

 

4. Midterm Elections – No matter which side of the aisle you are on, elections always seem to have an impact on the real estate market. Often, investment activity in real estate slows as elections approach, as many await the outcome before investing their capital. A shift in political power federally and locally can change the landscape of the market and either bolster activity or halt it completely.

 

5. Looming Recession Fears – This year, the economy has experienced two negative quarters of GDP growth, although it is widely debated by economists and real estate professionals if we’re currently in a recession or trending that way. A recession can have a direct impact on commercial real estate in a variety of ways resulting in vacancies, rent collection, unemployment, weakened property values, and pessimistic investor sentiment softening the buyer pool. The economy can influence the commercial real estate market greatly and its performance these final months could offer investors a glimpse of what lies ahead in 2023.

 

Consult with an Investment Professional

Consulting with a local investment specialist that is in sync with the market will ensure you are receiving relevant information to help stay ahead of the market. The market changes daily and having accurate data specific to your market is vital to making successful real estate decisions. Understanding the underlying fundamentals of current market conditions as well as identifying trends are key components in determining which of three choices each investor faces — sell, buy, or hold.

 

John Kourafas, CCIM, is a Commercial Investment Advisor with the Visintainer Group in Fresno, CA. Formed in 2018 and built on a foundation of investment real estate, the Visintainer Group is a client-first commercial real estate firm. The Group has executed over $600 million in transactions across the United States. John specializes in commercial property acquisitions and dispositions for owners in the Central Valley, Sacramento, and Central Coast markets. He can be reached at 559.890.0419 or [email protected].

Rising Insurance Premiums: What Multifamily Investors Should Know

September 22, 2022 | 

The Business Journal

Regardless of whether you are just starting your journey into multifamily investment real estate, or a seasoned professional with many units in your portfolio, operational costs are a constant area of focus.  Rising operational costs are having a vastly different impact on returns depending on size of the property, its age, and its location.

 

Operational expenses are typically grouped into two categories: non-variable and variable.  Non-variable costs are defined as those that you have limited or no control over such as property taxes, insurance, and utilities.  Variable costs are those that change over the course of the year and can be easily influenced by the decisions you make.  Some examples of variable costs are repair and maintenance, landscaping, pest control, turnover costs, renovations, and marketing and advertising.  These costs can all be shopped, and you can decide which vendor to use based on price and quality.

 

One of the primary threats to multifamily investment returns is rising insurance costs. Insurance premiums for this industry have significantly increased over the last two years, dating back to early 2021 and intensifying in 2022. Multifamily investors have reported 40-50% increases in premiums, and in certain cases, insurance premiums have doubled. Moreso, apartment owners are also faced with increased deductibles and self-insurance limits. The combined impact? Not only are apartment owners realizing a lower net operating income, but they may also face the inability to secure financing for new investments. Higher deductibles will require larger capital reserves, forcing some property owners to sell.

 

Factors driving insurance premium increases

Insurance professionals are attributing the following factors to the change in premium rates:

  • Natural disasters have become more frequent and more damaging, causing major losses for insurers.
  • Inflation and supply chain challenges have dramatically increased the cost of building materials. These costs shift to the insurer in the case of a claim. Hence, increased costs result in increased rates.
  • Properties with unfavorable claim history.

 

How to mitigate rising costs

Property owners should develop and implement a loss prevention strategy to negotiate deductibles and minimize premium increases.

  • Simply put, maintain your property. Monthly or even weekly preventative maintenance schedules are critical to minimizing costs.
  • Have a documented risk management plan. Owners who show reduced hazards and efforts to minimize the frequency and severity of potential claims, have a greater chance of securing a lower rate.
  • Improvements to the property: additional lighting, gating the property or installing security cameras will improve tenant safety and reduce the risk of liability claims.

 

Economies of scale minimizes the negative impact

One of the most effective ways to minimize the rising costs of operating multifamily investments is by owning multiple properties.  The ability to spread operational expenses over several properties and units can be substantial compared to a single property with a few units.  Many larger operators with 100+ units have not experienced the same increases in insurance costs as those owners with only a few properties or units.  The benefit economies of scale have on the operational costs for investors can be advantageous in maintaining costs and/or minimizing increases. Larger operators have only reported standard 10-15% increases in expenses like insurance premiums.  In contrast, single property operators and/or owners with a few rental units have reported 40-50% increases in those insurance premiums over the last 12-18 months.

 

The importance of persistent monitoring of your portfolio

Operational costs are a major component to any investment real estate asset.  Having a consistent approach to monitor trends that will impact expenses can be a key contributor to maintaining positive cash flow throughout the life of your investment.  Market conditions are constantly changing and so too are the costs associated with investment real estate.  It is important to consult with a knowledgeable commercial real estate professional who can detect deficiencies in your operations and help identify the most appropriate steps to maximize income.

 

 

 

Dustin Ilic, CCIM is a Multi-Family Investment Advisor with the Visintainer Group in Fresno, CA. Formed in 2018 and built on a foundation of investment real estate, the Visintainer Group is a client-first commercial real estate firm. The Group has executed over $580 million in transactions across the United States. Dustin specializes in multi-family property acquisitions and dispositions for owners in the Central Valley and Central Coast markets. He can be reached at 559.890.0319 or [email protected].

3 Biggest Mistakes Investors/Brokers Make While Underwriting Commercial Real Estate

August 21, 2022 | 

One of the most important parts of a commercial real estate acquisition or disposition is the underwriting that takes place during a transaction. Underwriting in commercial real estate is commonly associated with the analysis that investors and real estate professionals use to measure the cash flow, risk, and most importantly, the value of an asset. Real estate professionals and investors will create an analysis that determines the feasibility of each property and its income. Once the NOI (net operating income) is established, the value can be determined.

Underwriting can be complicated, but it is a crucial part of the transaction process. When analyzing a property, accuracy is imperative. If done correctly, an owner or buyer can maximize their value and return, whereas an inaccurate analysis can cost thousands to millions of dollars. Detailed below, is an examination of the three biggest mistakes investors/brokers make when underwriting properties.

 

1.Inaccurate Assumptions

One of the most common mistakes made by investors and brokers when underwriting is inaccurate assumptions in an analysis. When underwriting properties, there’s a significant amount of forecasting and assumptions that need to be made to measure an investment. The more uncertainty in a property, the more assumptions needed in the analysis. It’s easy for investors to be drawn in by a high potential return on a property. Often, we see assumptions with little to no data to support the numbers. However, if the numbers aren’t accurate, you can find yourself upside down in a property after making a substantial investment. Common assumptions in commercial real estate are:

Market Rent – Applied when filling vacancies or forecasting potential rental growth

Deferred Maintenance (Capital Expenditures) – Repairs to parking lot, roof replacements, paint, landscape, interior spaces, facade

Re-Tenanting Costs – Leasing Commissions, Tenant Improvements

Loan Info – Interest rates, amortization, term, pre-payment fee

Closing Costs – Escrow costs, broker commission, taxes, attorney fees

The real estate world can move fast and if you’re not in tune with the market, it’s easy for investors to make decisions on inaccurate data that can lead to poor investments.

 

2. Expenses

Failure to account for all expenses and reimbursements is another common mistake that occurs in underwriting. Property taxes are perhaps the biggest operating expense in a property and yet, people still forget to update them in an analysis to reflect the reassessment after a sale occurs. Other common line items that can be impacted by a sale are insurance, management fees, inflation, existing service contracts, and expense reimbursements from tenants. Understanding tenant reimbursements can be complex. It is imperative that each lease is read in detail to understand the current reimbursement guidelines and how this may change after a sale. If expenses are not accounted for properly, this can sway a property’s value greatly.

 

3. Vacancy and Credit Loss

Vacancy and credit loss is the amount of money or the percentage of net operating income that is estimated to not be realized due to vacating tenants or spaces. We see frequently throughout the industry that this is a key component in underwriting that is often overlooked. Common oversights may include general vacancy and credit loss being omitted from an analysis or inaccurate vacancy rates applied but aren’t indicative of the local leasing climates. When an investor purchases a building, the goal is to lease the entire property or maintain its occupancy at 100%. However, it’s inevitable that vacancy will be incurred at some point over the term for a lot of properties. Applying an accurate vacancy rate provides owners with a realistic snapshot of their income over the hold period and account for unforeseen vacancies that may arise.

 

Consult with an Investment Professional  

Underwriting has complexities and requires in depth market knowledge to perform successfully. Consult with an advisor who has comprehensive underwriting capabilities, market expertise, and an understanding of elements that impact value.

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John Kourafas, CCIM, is a Commercial Investment Advisor with the Visintainer Group in Fresno, CA. Formed in 2018 and built on a foundation of investment real estate, the Visintainer Group is a client-first commercial real estate firm. The Group has executed over $580 million in transactions across the United States. John specializes in commercial property acquisitions and dispositions for owners in the Central Valley, Sacramento, and Central Coast markets. He can be reached at 559.890.0419 or [email protected].

Understanding the Importance of Planning for a 1031 Exchange

August 10, 2022 | 

A 1031 Exchange, in short, is a way for investors to sell an income property and defer the capital gains taxes by buying a new income property (replacement property). A common question from investors is, “When should I start working on my exchange if I know what I am going to sell?” When it comes to planning, there is no such thing as “too early” for an exchange. The more you understand the investment market and process, the more likely you are to make a solid investment decision.

 

Over the last few years, upwards of 50% of our company’s transactions have involved an investor with a 1031 exchange. With the amount of sale activity in the real estate investment market due to the increased values, investors have been and are continuing to utilize the 1031 exchange to protect their capital. If done correctly, with a plan, investors can achieve their financial objectives. If done without a plan, investors can find themselves rushing into the purchase of a bad property due to the short time frame and may have been better off paying taxes.

 

Plan Ahead

Successful exchanges start with a strong plan. This includes understanding the components of the exchange, the timing, and involving the right team early on. Investors should understand the property type they will be looking for, expectations of return, debt needed (if applicable), price point, team (attorney, accountant, broker, intermediary), and timing of the process – starting the exchange process before an investor is closing the sale of a property is key. Taking these steps before an exchange better prepares an investor and allows them to find a good property matching their investment criteria. Like anything, not having a plan is planning to fail. In the world of real estate exchanges, it could cost hundreds of thousands of dollars – maybe millions if the wrong property is purchased, or worse, the exchange doesn’t go through and you pay the taxes.

 

Investors, per the tax code, have 45 days from the date of the sale of their property to choose the property they will buy. When people wait until after they close on the sale of their property to start planning, they often struggle to understand what they are looking for. Today, many of the best deals are done off market. That means if an investor is only looking at properties on the market, they will have a difficult time finding the best opportunities. Trying to learn which property type you want, where you want to invest, and figuring out the investment market while simultaneously looking for a replacement property can be a recipe for disaster.

 

Key Components for a Successful Exchange

The best advice I can give investors who are considering selling an income property and interested in an exchange is the following:

 

— Meet with your accountant to understand your tax consequences and how an exchange could work for you. This will help you with your plan and understand if an exchange makes sense

— Meet with an investment broker who can put a plan in place based on the amount you will exchange and your investment criteria for the exchange property. This will allow you to understand the market, what your options are, and ensure the property type, return, and location meet your expectations.

— Once you feel comfortable with the options and still want to proceed with the exchange, then put your property on the market for sale. Having the exchange plan in place eliminates any concern of what to do after your property sells.

— During the time you are in escrow you will want to make sure you have an intermediary in place. This is an integral part of the exchange process. The intermediary is a company that will hold your funds after close of escrow of the sold property until close of escrow on the exchange property.

— If debt is needed, meet with lenders to discuss your financing options and submit all personal documents to make sure you have your loan lined up. Financing is important to get in front of. Understand the terms and what you qualify for based on the property type you will be purchasing.

— Start making offers on properties the last week in escrow (of the property you are selling). Not waiting for the escrow to close buys you more time as offers can take a week or two to finalize to purchase contract. Doing it the week before you close allows you to start the exchange process before your 45-day clock to find the replacement property.
An exchange can be a great way to get out of an asset that doesn’t fit future investment goals and into an asset that make sense for years to come. Reduce your risk of making a mistake and talk to professionals before you make any decisions to sell a property. Create a plan for the exchange. Knowing your expectations of return, property type, and location are all the key factors to understand before starting the exchange process.

 

 

Brett Visintainer, CCIM is a Commercial Investment Advisor and the Principal of Visintainer Group in Fresno, CA. Formed in 2018 and built on a foundation of investment real estate, the Visintainer Group is a client-first commercial real estate firm. The Group has executed over $575 million in transactions across the United States. Brett specializes in commercial property acquisitions and dispositions and 1031 exchanges for owners in the Central Valley, Sacramento, and Central Coast markets. He can be reached at 559.890.0320 or brett@visintainergroup.com.

Visintainer Group Wins CoStar’s Q2 2022 Power Broker Quarterly Deals Award

August 01, 2022 | 

CoStar Group, Inc., the leading provider of commercial real estate information, analytics and online marketplaces announced the CoStar Power Broker Quarterly Deals winners for the second quarter of 2022. Brett Visintainer and John Kourafas of Fresno-based Visintainer Group were named in the list of Top Sales Deals winners for the Sacramento and Stockton/Lodi markets. The CoStar Power Brokers Quarterly Deals winners are determined by the top deals executed every quarter, based on price and square footage. Visintainer Group was recognized for the following transactions:

  • Capital Village Shopping Center, Rancho Cordova, CA | $36,000,000 | 94,525-square foot shopping center | Visintainer Group represented the buyer
  • 2439-2445 W. Kettleman Lane, Lodi, CA | $6,830,000 | 9,009 square foot multi-tenant retail outparcel to a grocery-anchored center | Visintainer Group represented the seller

Please help us congratulate Brett Visintainer, John Kourafas and the Visintainer Group team on their CoStar Power Broker Quarterly Deals win for the second quarter of 2022.

For more information, visit: https://www.costarpowerbrokers.com/quarterly-deals/

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About Visintainer Group

Formed in 2018, the Visintainer Group is an elite investment advisory and brokerage firm focused on tailored real estate solutions for the acquisition and disposition of commercial properties. They are client-first commercial real estate firm. Using a proprietary database of available properties, buyers, sellers, and opportunities, they specialize in everything from commercial real estate transactions to multi-family properties, 1031 Exchange strategies, agricultural land, and full-stack investment services. The Group has executed over $570 million in transactions across the United States.

About CoStar Group, Inc.

CoStar Group, Inc. (NASDAQ: CSGP) is the leading provider of commercial real estate information, analytics and online marketplaces. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe, Canada and Asia with a staff of approximately 4,900 worldwide, including the industry’s largest professional research organization. For more information, visit www.costargroup.com.

 

Multifamily Investments: First Half of 2022 Proving to be Most Active Year Since Pandemic

July 18, 2022 | 

Over the past two years, a common perception has been that there is little to no inventory of available multifamily properties on the market in the Central Valley. If you compare the volume of transactions year over year to 2019 (the year preceding Covid), that perception is proven true. The pandemic year, 2020, saw a reduction in total sales transactions in the Central Valley by 18.1% compared to 2019. Last year saw an even further reduction in transaction volume, down 26.3% from 2019. This downward trend has reversed itself so far in 2022.  During the first half of this year, Central Valley multi-family transaction volume is 51.1% higher when compared to the same period in 2021.

Here are some of the economic factors we have been tracking that further explain this trend:

  • Inflation has surpassed a 40-year high and has been accelerating faster than anyone could have expected
  • The Fed has been slow to react, and they are now playing catch-up
  • Much of this volume is hang over as many buyers were able to lock in interest rates before increases.
  • Lenders have adjusted quickly to the Feds’ actions by raising interest rates and taking a more conservative approach
  • As the cost of funds rises, asking prices are increasingly more difficult for investors to reach
  • Looming fears of a potential recession in 2024

 

The Impact of the Fed

The Federal Reserve increased its benchmark rate 0.25% in March, another 0.50% in May, and another 0.75% in June, with even more rate hikes projected over the course of 2022. New market data is suggesting that inflation is coming in hotter and proving more stubborn than policymakers had hoped. Lenders throughout the country have quickly adjusted to these rate hikes and have dramatically increased interest rates from 3.3% in late 2021 to over 5.45% currently.

Market value has started to moderate slightly because of these rate adjustments, however, there is still an extreme amount of capital looking to be deployed that will help maintain robust buyer activity and demand through the end of the year. Multifamily fundamentals are still strong, with favorable migration trends, high household formation, and solid wage growth contributing to continued demand.

Central Valley a Hot Spot for Investments

The Central Valley has enjoyed surging demand as investors look for markets experiencing high year over year rent growth. Among tertiary markets across the county, the Central Valley ranks seventh highest for year over year rent growth at 16.5% and average market rent now stands at $1,490 per month. Since the start of 2020, Fresno rent growth has increased 23.7% while Visalia saw the largest increase in the Central Valley over that same period of 39.3%. Average rents now exceed their pre-pandemic level. Moving forward it is expected that the economy and the multifamily industry will continue this growth pattern, but at a more moderate pace.

Many owners have already taken advantage of investor demand, but as more owners convert into sellers, bidder pools will reduce due to the increase in available properties for sale. Sellers will experience downward pressure in values as interest rate volatility will impact pricing moving through the end of 2022, we have already seen a 13% reduction in value since January 2022.

Amid all the noise, the key to success will still be thoughtful market insight and investment strategy.

Dustin Ilic, CCIM is a Multi-Family Investment Advisor with the Visintainer Group in Fresno, CA. Formed in 2018 and built on a foundation of investment real estate, the Visintainer Group is a client-first commercial real estate firm. The Group has executed over $570 million in transactions across the United States. Dustin specializes in multi-family property acquisitions and dispositions for owners in the Central Valley and Central Coast markets. He can be reached at 559.890.0319 or [email protected].

 

Understanding Expected Returns Vs Risk in Commercial Real Estate

June 20, 2022 | 

When investing in commercial real estate, it’s important to understand each investment type and average return on investment (ROI) before deploying your capital. Whether you’re purchasing retail, office, industrial, or multi-family, determining which investment class best represents you, will establish your risk tolerance and help find the right investment that aligns with your goals. We have found that astute investors typically spend a great amount of time planning with a trusted real estate advisor to educate themselves on current market conditions and expected risk/returns before making their initial investment.

When measuring investments and their offered return, we look at the following characteristics: location, CAP rate (CAP rate = net income ÷ purchase price), income growth over a hold period, strength of tenant(s), length of lease term, and management intensity. Understanding these different attributes will help investors determine the amount of risk each investment offers and provide them with the ability to identify which properties are overvalued, undervalued, or in line with market pricing.

Below are examples of five investment classes which are commonly used by investors and real estate professionals to classify commercial real estate investments:

Risk-Free (Non-Real Estate) 

Risk-free investments are non-real estate investments, such as Bonds, CDs (Certified Deposits), Money Market Accounts, Savings Accounts, Treasuries, and Notes. These are considered risk free investments because of their fixed returns and high liquidity. Due to their safe nature, these investments run the lowest on the return spectrum compared to all other commercial investments. Understanding risk-free investments in commercial real estate is important because it provides a baseline for all other investment classes below and can shape the market.

Core

Core investments are arguably the most sought-after properties in commercial real estate and can be single tenant or multi-tenant. These investments can be single or multi-tenant properties and often contain long-term leases backed by strong corporate tenants, such as Starbucks, In-N-Out, and Walgreens, to name a few. If single tenant, the average remaining lease term is around 10 years while multi-tenant is a blend of 5-10 years remaining. There is little to no management on these properties and the strategy for most investors when purchasing is a long-term hold plan. From a risk perspective, these investments offer the lowest amount of risk as well as return.

Core Plus

Core plus investments can be either single or multi-tenant and offer investors an increase in return and risk compared to core investments. These properties can include as few as one tenant to greater than twenty. With an increased number of tenants and higher returns, owners can be faced with shorter leases, which give a higher chance of vacancy and constant lease negotiations/renewals over an ownership period. These properties usually consist of smaller tenants rather than national tenants. The increased day-to-day involvement from the owner and higher risk of vacancies are why returns on these investments are higher than core assets.

Value Add

Value add investments are some of the highest risk properties in the market. These investments are the properties low risk investors tend to avoid and usually contain some sort of issue that needs to be solved. Whether it be a high amount of vacancy, deferred maintenance, short leases, or larger vacancies not in demand (think vacant K-Marts and Drug Stores), these investments are attractive to investors because they see an opportunity to add value and increase the return. Value-add buyers are considered full time investors and are very hands-on in the day-to-day of these properties.

Opportunistic 

Opportunistic investments, often done by the most sophisticated investors, offer the highest risk and, if done successfully, can award owners with very high returns. Examples of opportunistic properties are empty buildings or shopping centers, raw land to be developed, and teardowns with replacement at the highest and best use. Investors will view these investments with a long-term plan, unless doing a flip or something short term with high risk on the front end. Much can go wrong, and risk is very high due to a variety of assumptions and unknowns. Owners can be faced with the risk of a complete loss of initial investment.

What’s Your Risk Profile?

Understanding your risk profile and which investment class you fit into is the first step towards making the right acquisition for your current needs and goals. If you’re looking for a long-term investment that generates steady cash flow, then a core or core plus asset might be the right fit for you. If you’re one who thinks taking great risk is worth the reward, then value-add and opportunistic properties might be a better fit.

Consult with an Investment Professional  

At the Visintainer Group, we carefully analyze each client’s situation, risk tolerance, and objectives to develop a custom strategy tailored for their needs. Whether it’s purchasing your first commercial investment or adding to your portfolio, our proven track record and market knowledge ensures that clients are investing in the property that best aligns with their objectives, not ours.

John Kourafas, CCIM, is a Commercial Investment Advisor with the Visintainer Group in Fresno, CA. Formed in 2018 and built on a foundation of investment real estate, the Visintainer Group is a client-first commercial real estate firm. The Group has executed over $550 million in transactions across the United States. John specializes in commercial property acquisitions and dispositions for owners in the Central Valley, Sacramento, and Central Coast markets. He can be reached at 559.890.0419 or [email protected].

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