If you had to pick a massive value winner for commercial real estate owners over the last year or so, it would have to be industrial, with the drive toward e-commerce for everyone.
A close second, thought, would be multifamily. People need to live somewhere at least as much as they need to order products online. But what’s the winning formula going forward? Value-add?
“Given the volume and velocity of capital looking for exposure to the sector, we are expecting all categories of multifamily assets to be competitive,” Matt Frazier, founder and CEO of Jones Street Investment Partners, tells GlobeSt.com. “However, where value-add strategies offer opportunities for incremental investment return, and where renters have more income as payrolls continue to rebound, value-add strategies may be particularly sought after.”
“Once you purchase a multi-family asset, always look for the value-add,” agrees Jonathan McKay, founder of the McKay Organization. “Plain and simple: value-add is the opportunity to make money on your buy. By investing in a few renovations, you can elevate a property to a comparable price that is more than what you paid for, including renovations. With this strategy, you can expect consistent cashflow and solid equity appreciation.”
Okay, but what of stabilized? Opportunistic? Core?
“As rents rise with the national median rent increased by over 15% in 2021, core investments will provide a turnkey option for investors,” says Christian Ross, managing broker for Engel & Völkers. “Core and value add will continue to be a hot investment strategy for multifamily assets in 2022 with the latter affected by labor and supply chain challenges. For buyers and sellers, this provides opportunities for increased cap rates and higher sales prices.”
Unless you focus on opportunistic. “In 2022, opportunistic investments will be key for multifamily strategies,” Frank Craighill, vice president of development at Monday Properties, tells GlobeSt.com. “The key to new construction and opportunistic investments is finding growing markets and understanding the needs of potential residents.”
Then there’s taking properties from one category and moving them over. “We expect that adaptive reuse, from condominiums and hotels, into conventional multifamily will continue and perhaps accelerate in 2022,” says Darby Parker, acquisitions manager for The Beach Company. “This is a space we look to, given the propensity for these to be in well-located established markets.”
The true answer depends on business models, personal preferences, geographic area, expertise, connections, and more. For one, value-add is king. For another, opportunistic buying that might come from lender write-downs of impaired CRE loan values might be the way to start a great year. Maybe the best answer is to not pay attention to what everyone else does. Instead, focus on how to operate more effectively in your niches.
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