Tag Archive for: shifting demographics

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A building that makes ā€œno senseā€ to most investors could be a diamond in the rough to another ā€” and knowledge and information is key in the current rising rate environment, according to one industry watcher.

ā€œYou canā€™t add value to bonds ā€” and unless you own a VC firm or youā€™re Warren Buffett or Elon Musk, you really canā€™t create value by owning stocks,ā€ says Marcus & Millichapā€™s John Chang. ā€œOther than owning a company or a franchise, only real estate allows investors to roll up their sleeves, either physically or metaphorically, and create value in an investment.ā€

And Chang says this happens in one of three ways: repositioning, management, or knowledge. Ā Repositioning can be as simple as upgrading common areas and as complex as transforming high-rise office towers into apartments (a trend thatā€™s happening at a rapid rate in some major metros). Ā It can also fall somewhere in between those extremes: think moving a Class C property to Class B or repurposing an outdated shopping mall into a mixed-use asset.

ā€œCreating value in management can also run the gamut,ā€ Chang says. ā€œAt the simplest level, an investor may see some high value but basic operational things that can be done ā€” perhaps just cleaning up a property, adding professional management and moving the rents to market. Something more complex may be re-tenanting a building. An office investor I know bought a very large property with an enormous vacant space. He already had a major tenant lined up so he bought the building, restructured the space a bit and then plugged the new tenant in. Boom: the building went from 25% occupancy to 90% occupancy and the property value changed dramatically.ā€

Chang also draws on another anecdote, this time in the multifamily space, to illustrate this point further. He says an investor he knows with a great apartment management team bought several small- to mid-sized near the ones he already owns and leveraged that team across multiple units.

And finally, thereā€™s knowledge, which Chang says is ā€œall about finding market inefficiencies and exploiting them.ā€ This could include acquiring assets based on emerging demographics or population migration, or could come on the heels of a major employer changing its HQ location or in advance of a tax or policy change. Chang says there are ample opportunities to ā€œcapitalize on information where the pending changes are not baked into an assetā€™s price.ā€

Several recent examples bear that out: the global supply chain dilemmas plaguing virtually every sector of the economy have prompted many companies to consider re-shoring or near-shoring to mitigate those types of risks in the future.

ā€œThese and more opportunities are out there, and a lot of them will make sense regardless of rising interest rates or other factors affecting the market,ā€ Chang says.

 

Source: GlobeSt