2023 Demand for Apartment Buildings Will Remain Strong

Multifamily
Absorption of units in the last 12 months: 174,442
Rent growth in the last 12 months: 3.7%
Cap rate: 4.9%

Rent prices are still higher than they were a year ago, but the gains have returned to more normal levels. Rent growth dropped to the lowest level since the first quarter of 2021. Rents rose 3.7% year-over-year in the last quarter of the year compared to 5.6% and 9.2% in the previous two quarters.

As elevated prices continue to hurt consumers, fewer people can afford to cover their rent expenses, decreasing the demand for apartments. After reaching all-time lows in 2021, the vacancy rate rose significantly in Q4 2022 to 6.1%.

While rents have increased in nearly all the metro areas across the county, Sun Belt areas have experienced an even faster rent growth, including Kingsport and Knoxville in Tennessee, Fayetteville, NC, Charleston, SC, and Naples, FL.

Respectively, demand for apartment buildings remains strong in big city centers such as New York and Washington, DC. In these two areas, more than 9,000 multifamily units have been absorbed in the last 12 months ending in December.

2023 Outlook:

Rent price growth won’t likely hit the 2022’s highs. Although multifamily housing construction has slowed down, the number of apartment buildings under construction is at record highs. Thus, the completion of these homes may ease rent growth.

Nevertheless, demand for apartment buildings will remain strong, considering many buyers have already been priced out of the market. Due to rapidly rising mortgage rates, buyers need to earn more than $100,000 to afford to buy the median-priced home. However, only 15% of the renters earn that income.

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Why You Should Hire a Commercial Broker

When people look for a home, one of the first things they do is hire a residential realtor. But when it comes to commercial real estate, some newer tenants and investors try to represent themselves when looking for commercial space. That’s almost always a big mistake.

In this article, we’ll look at the benefits of listing commercial real estate with a broker, how to find the best broker in your market, and six key questions to ask before hiring a commercial broker.

Benefits of Hiring a Commercial Real Estate Broker

A commercial real estate broker works with property owners and tenants to buy, sell, and lease real estate for commercial use. Compared to buying a home, where a lot of emotion is involved, a commercial agent understands that investment real estate is mainly a numbers game. The top benefits of hiring a skilled commercial real estate broker in your local market include:

• In-depth market knowledge to find the best commercial property for sale, including properties just coming to market.
• They represent buyers and sellers of commercial real estate – and tenants seeking to lease or sublease space – while always keeping the client’s best interest in mind.
• Hiring a commercial broker is cost-effective for CRE investors and tenants because the seller or landlord typically pays fees instead of the client.
• Access to commercial listing sites to quickly lease space by generating as much demand as possible from qualified tenants.
• Posting available commercial property for sale on the top commercial real estate websites ensures the property is seen quickly by as many buyers as possible.
• Networking with other commercial agents and local real estate experts helps locate hard-to-find property and allows investors and tenants to get the best deals on the market today.
• Help clients to stay objective and focused, calmly explaining and exploring all options of a commercial real estate transaction without tipping their hand to the other parties in the deal.
• Commercial real estate brokers also save clients time and money by working to find opportunistic properties to lease or invest in and hammering out the best deal by knowing what to ask for and when.

Skills to Look for in a Commercial Broker

Finding a great commercial broker is similar to looking for any other specialized service professional, such as a doctor or lawyer. Skills to look for in a commercial real estate broker include:

Expertise – Expertise in specific commercial real estate asset classes like office, retail, multifamily, industrial, or special use investments.

Experience – What they’ve done, whether representing tenants looking for space to lease or sublease or working with a landlord to lease or sell commercial property.

Network – Presence in a specific geographic area or submarket signifies that the broker has an established network of contacts and understands how deals get done and tenants and property owners work.

How to Hire a Commercial Real Estate Broker

First, determine what your specific needs are. For example, are you an investor with anchor space in a shopping center that needs to be filled, or do you own a free-standing building and seek a regional or national tenant willing to sign a triple net lease?

Next, look for a broker who only works in commercial real estate. Some agents only “dabble” in commercial estate and sell houses most of the time, which means they won’t bring value to your transaction. In some small markets, it may not be possible to find a specialty broker who only handles leasing or retail property but always look for an agent who makes their living in commercial real estate.

Third, narrow down your choices by reviewing each prospective candidate's professional designations to help choose the commercial real estate broker best for your needs. Commercial real estate practitioners with classroom and real-world experience can help clients reduce risk, enhance credibility, make the right decisions, and negotiate the best deals possible.

It also behooves you to look for brokers that are part of commercial real estate networks and organizations and hold industry certifications. Some top commercial real estate designations include Certified Commercial Investment Member (CCIM), Society of Industrial and Office Realtors (SIOR), and Certified Property Manager (CPM) from the Institute of Real Estate Management (IREM).

6 Important Questions to Ask a Commercial Real Estate Broker

Once you’ve put together your shortlist, make sure to ask these six key questions before hiring a commercial real estate broker:

1. When was the agent first licensed, and what type of continuing education is the agent required to take by the state and the employing brokerage firm?
2. How many years has the commercial agent been helping clients lease, buy, or sell commercial real estate?
3. What geographic locations does the agent specialize in, such as market or submarket, neighborhood, or corridor?
4. What type of commercial property does the broker specialize in, such as office or retail, multifamily or mixed-use, or industrial and special-use property?
5. What references can the broker provide from similar tenants or businesses to yours that the broker has recently represented?
6. For tenant brokers, is leasing or buying a better business decision based on local market trends and the amount of available space for lease?

How to Find a Commercial Broker

The commercial real estate world can be a small, tightly-knit community that can be difficult to penetrate, especially for new commercial real estate investors.

One good way to find a commercial real estate broker is to speak with tenants running a successful business in the type of commercial property you’re seeking. The tenant can connect you with their leasing agent or property manager, who can refer you to a commercial broker active in the local market.

The most successful brokers in larger commercial real estate markets usually focus on specific areas or corridors. Try driving around looking for commercial signs with the same agent name or commercial real estate firm, then contact the broker to learn more about how they work. If you like what you hear, set up a face-to-face meeting in person or with Skype or Zoom.

Remote commercial real estate investors who don’t live in the same market they invest in can use commercial real estate listing sites to find a great commercial broker. Going online to look for a commercial broker is similar to driving and looking for signs, except you can do everything online, saving time and money.

Commercial real estate brokers provide their clients with the competitive edge needed to get deals done in today’s marketplace, no matter their positioning. Tenants looking for space and buyers of the commercial property benefit from a broker’s experience and expertise, while the landlord or seller pays the commission fees. Commercial real estate sellers and landlords hire a commercial real estate broker to market and show the property, negotiate the sales transaction, and get vacant lease space filled quickly.

 

Source: Why You Should Hire a Commercial Broker | Crexi Insights

https://www.creconsult.net/market-trends/why-you-should-hire-a-commercial-broker/

10 Tips For Selling Commercial Real Estate

In 2021, the U.S. saw 91 billion dollars invested in building commercial real estate. While this is an excellent sign that the commercial real estate industry is booming, it also creates more competition for owners trying to sell.

Here are ten tips to help you get ahead of the curve to help your commercial property sell quickly.

1. Determine the Fair Market Value of Your Property

Without a professional estimate, you may be overestimating your property's value, which could deter potential buyers or leave money on the table.

Hiring an expert to perform a market value estimate is a good idea, as is gathering your market intelligence. You can find out what price other similar properties in your area are selling for. The information will be more accurate since the calculations are based on usable area, not total area. You will get a more precise overview of the price of real estate compared to your property.

2. Order Your Report Title Immediately

As soon as you know you want to sell your commercial property, call your real estate attorney and order your title. A great real estate attorney will quickly respond to your request and walk you through the steps, starting with the most complicated items. The title report can take up to 10 days to arrive, and the faster you get your title, the quicker you can sell your property.

3. Update Your Environmental Reports

If your environmental reports are more than six months old, it’s time to update them. Interested buyers want to ensure they’re not purchasing a building with potential environmental risks. So make sure your environmental reports are up-to-date, complete, and precise.

Providing an accurate report will help you in the long run because it will reduce the number of questions and doubts your potential buyer may have. Remember that these reports can take up to 21 days to arrive, so do this as quickly as possible.

4. Get All of Your Paperwork Ready

Before you list your commercial property for sale, ensure you have your paperwork ready. Not being fully prepared can deter potential buyers as they may worry about dealing with unknown issues down the road. Ensure you have your ownership papers, permits, and certifications your new buyer will need.

If you have tenants in your commercial property, you will also want to gather and organize your rent roll along with any profits and loss statements from the past two years.

Providing the buyer with a rent roll will let them know which tenants are leaving soon and which are staying for the next few years. In addition, organizing your information clearly and concisely will let your buyer know where their rental income is coming from and identify potential opportunities to increase revenues after the transaction closes.

5. Create a Service History List

Make a list of your primary service vendors, such as those dealing with window cleaning/repairs, plumbing, electrical, HVAC, elevator, fire safety, and utilities.

Include in your list extensive service history records for any repairs or replacements. Providing this information will show your buyers that you are upfront and honest while allowing them to estimate how much they need to spend on future repairs and replacements.

6. Do a Thorough Clean Out

It’s hard for a potential owner-user buyer to picture purchasing your property if it’s cluttered with unnecessary items. So go through closets, storage rooms, etc., to ensure that anything left behind by previous tenants is removed. Likewise, anything outdated or an eyesore should be removed or kept out of view.

7. List Your Property on Commercial Real Estate Websites

Commercial real estate listing websites like Crexi are a great way to promote your property and potentially sell it faster. Doing so allows you to list your property at an attractive price while broadening your chances of reaching more serious buyers. When choosing a website to list your property, consider sites that generate a lot of traffic to increase your visibility and ones that are lower cost.

8. Use Social Media To Your Advantage

If used correctly, social media can be a free way to advertise your property. Post beautiful property pictures along with helpful information about the asset. Keep an eye on your posts to see how many people are viewing them, and reach out to anyone who seems interested. Also, look at similar pages where people advertise their properties and take notes on what attracts your eye.

9. Have a Cash Price in Mind

Having a cash price in your mind can lead to faster sales with buyers who are serious about purchasing. Setting a cash price motivates potential buyers and lets them know you are serious about selling.

Be cautious of offering a cash price to a buyer who intends to finance the purchase. Financing could delay your process by one to two months as the buyer may need to go through an appraisal, loan committee, review, necessary paperwork, etc., to complete the loan.

10. Choose an Experienced Commercial Real Estate Agent

Unless you have potential buyers lined up, you should contact a commercial real estate broker to help sell your property quickly and correctly. A great commercial real estate broker can provide you with a list of active qualified buyers; tell the broker if you want to sell fast.

One way to find an agent is to ask other commercial tenants and businesses around you for recommendations. In addition, it may be helpful to ask firms in similar industries to find a broker who specializes in your market.

The Bottom Line

When selling your commercial property quickly, think like a buyer. Get word of mouth out that you’re selling and provide plenty of information and pictures. Exhaust all of your resources to reach the most people.

In addition to aggressively marketing your property for sale, you want to show that you are organized and responsible so that future buyers can feel at ease. Ensure your property looks clean and have all your paperwork on hand to keep the transaction going smoothly. The better prepared you are, the greater the odds of getting your desired price.

 

Source: 10 Tips For Selling Commercial Real Estate | Crexi Insights

https://www.creconsult.net/market-trends/10-tips-for-selling-commercial-real-estate/

Should I Sell or Should I Hold? When is the best time for asset repositioning?

When it comes to selling their investment properties, clients typically ask me,’ Why should I sell?’ Great question. Why should you sell? The obvious answer is that you purchased the investment property as an investment, and it may not be doing as well as other investment opportunities, and after a while, you don’t realize the appreciation and thus maximization of profit from the property until you sell and acquire another investment property. So the question is really, ‘When should I sell? Clients really lose the perspective of the driving reason why they invested in an investment property in the first place. An investment property is just that; an investment. Treated as such, every investment must have a horizon and an exit strategy. If a property was purchased as an investment, then it makes full sense to profit as much as possible from the investment.

The real estate market, like any other market, will go through peaks and valleys. Trying to predict the exact moment of peak or the exact moment the market reaches the bottom is practically impossible. The real estate cycle has four phases; recovery, expansion, hyper supply, and recession. The complete real estate market cycle seems to have an average duration of about 18 years as there is good historical data to support that. So, where are we in that cycle now? How much more upside will we see before we reach the peak? The question really is, ‘What is your appetite for risk?’

Below is a chart of the real estate cycles dating back from the 1800s. The last real estate market crash started at 2006. We are almost 16 years into that cycle. Interest rates are still at all-time lows. Money is cheap, and the threat of inflation is very high. How long can government print money without paying the price down the road? How much road do we have left?

So when is a good time to exit an investment property? As with everything else, real estate is cyclical. Those of us that have been around for some time have witnessed several cycles in the real estate market. Since it is practically impossible to predict the peak of cycles, what strategy should you then use to maximize your investments? Keeping it simple, when evaluating if you should consider selling an investment property, it doesn’t really matter what the current real estate market is like. If you are looking to replace the investment property with another investment property, the ultimate decision to sell should also be based upon if you can increase your returns with the new replacement property, not what state the current market is in now.

There are a number of factors that can impact real estate prices; availability, investment potential, and interest rates, to name a few. Interest rates impact the price and demand of real estate—lower rates bring in more buyers due to the lower cost of money but also expand the demand for real estate, which can then drive up prices. As interests rate starts to inch up, the cost of money increases, and thus the appetite for real estate investments declines.

However, there are many ways that one can still protect their investments. 1031 Exchanges give investors a vehicle to reposition assets and mitigate risk. There are certain asset classes that inherently hold less risk and still perform as an investment vehicle. The questions really come down to; ‘How long do I hold on during this cycle? Do I have the time horizon to outlast another cycle? Is it time to reposition and take advantage of 1031?

As part of the team for our client’s investments, we specialize in building solutions around our client’s needs. We analyze the requirements, crunch the data, and present assets entirely based on their circumstances and the goals they are trying to achieve with their investment.

Have you thought of selling your property and would like to know what it’s worth? Request a valuation for your property below:

Request Valuation

 

Source: Should I Sell or Should I Hold? When is the best time for asset repositioning?

https://www.creconsult.net/market-trends/should-i-sell-or-should-i-hold-when-is-the-best-time-for-asset-repositioning/

What Is a Capitalization Rate and How Does It Work?

Estimating a residential property’s value, even ones in distressed condition or of unique profiles, is pretty simple: you look at the sale prices of similar properties, make some adjustments for condition, style, and location, and there’s your number.

However, it’s not as straightforward with commercial properties. Finding “comps” for commercial properties can be quite a bit more complicated since they come in many more sizes and configurations than a one-, two- or three-bedroom house. This is why commercial investors use cap rates (short for capitalization rates) to gauge the quality of an investment.

But what is a cap rate, how is it used, and how is it calculated? Let’s cover those questions and a few more below.

What Is a Cap Rate?

A cap rate is a number that tells an investor what kind of return they can expect on the investment property and how long it’ll take for them to make back the purchase price. From there, they can also make certain assumptions about the investment’s risk and overall quality.

Cap rates take a property’s net operating income (NOI), the money you’ll make from the property minus any operating expense, and divide it by its purchase price.

So let’s say you’re looking at an apartment building with a price of $10 million. You project that you’ll take in $900,000 in rent with $150,000 of expenses, leaving you with a net operating income (NOI) of $750,000. Dividing that by $10 million gets you a cap rate of 7%.

So what does a cap rate of 7% (or any other percentage) mean?

Interpreting Cap Rate

Low cap rates mean you’ll have lower risk and higher value, though lower cash flow. Higher rates mean you’ll have higher returns, with higher risk and a lower price.

Properties with low cap rates (3-5%) tend to be Class A or B: new construction, good amenities, located in central, desirable locations. Think of a luxury apartment building in Manhattan — high rents, high expenses, but low risk, with very healthy and rapid appreciation.

On the other hand, properties with very high cap rates (more than 8%) tend to be Class C or D properties — older properties that may need repairs, have few or no amenities, and are in less-than-desirable locations with little access to things like good schools or commercial areas. Think of a rural mobile home park: lots of cash rents, few expenses, but high tenant turnover and little potential for meaningful long-term appreciation.

Of course, differences in market and geography can make a big difference. A 6% cap rate for an office building in downtown Nashville, Tennessee, is a lot different than a 6% cap for a warehouse in small-town Wyoming. But these general guidelines are relatively accurate, and a simple, all-inclusive metric is necessary in situations where, for example, you’re trying to convince someone to give you a loan for an investment.

Is a High Cap Rate Better Than a Low Cap Rate?

Asking if a high cap rate is better than a low cap rate is like asking if vanilla ice cream is better than chocolate ice cream — it all depends on your preferences!

If you’re a very long-term real estate investor with a surplus of patience — a “buy and hold” type — you’ll likely want to target properties with low cap rates. While these properties will yield relatively lower cash flows, they’ll see significant increases in value over time, and they’re very safe investments.

Since they’re in high-demand areas, there are few vacancies, so your cash flow is highly predictable, albeit low. Your profits here will be through the equity you build as the property increases in value. And don’t forget — you can improve these properties and raise the rents, which will raise your ROI!

On the other hand, if you’re an investor who wants a “quick win” and prioritizes cash flow, you should target properties with higher cap rates. For example, a Class C apartment building with a cap rate of 10% will consistently bring in a good amount of cash.

However, due to location and tenant profile, the rent and the property value won’t have a lot of room to grow, even if you make significant improvements to the property. A high-cap property is a classic “high floor, low ceiling” situation.

What is Cap Rate Compression?

You can change your property’s cap rate by increasing or decreasing the rent — or market conditions can alter your property’s cap rate.

When property values go up (as they have been for the past several years) but cash flows remain the same, cap rates go down. This is called cap rate compression; a compressed cap rate isn’t necessarily the same as a low cap rate.

Cap rates become compressed when lots of money enters the market, bidding up prices. This creates a strong seller’s market that can price out a lot of investors looking to buy into the market. As prices continue to go up, but NOI stays the same, yields drop.

When yields drop to market interest rates or below, investors must pay cash for their investments. Investors unable to do so are locked out of the market, thus cooling demand. And when demand cools, prices tend to drop — a situation that we’re likely approaching in the residential real estate market as the effect of higher interest rates filters through the market.

In these circumstances, a low cap rate isn’t an indicator of a safe, solid, low-risk investment — it’s an indicator of a potentially overpriced market approaching its peak. The trick, of course, is being able to tell the difference between a low cap rate and a compressed one. It’s not always easy, especially in an uncertain economy. Still, looking at cap rates is one vital tool in a savvy investor’s toolbox.

 

Source: What Is a Capitalization Rate and How Does It Work? | Crexi Insights

https://www.creconsult.net/market-trends/what-is-a-capitalization-rate-and-how-does-it-work/

1120 E Ogden

Retail / Office Space For Lease | 3,674 SF | $20/SF NNN
1120 E Ogden Ave, Suite 101 | Naperville, IL 60563
Broker: Randolph Taylor rtaylor@creconsult.net | 630.474.6441

https://www.creconsult.net/retail-office-for-lease-1120-e-ogden-ave-suite-101-naperville-il-60563/?wpo_all_pages_cache_purged=1

9301 Golf

Golf Sumac Medical Offices For Lease | 998 - 2,853 SF | $28/SF MG
9301 West Golf Rd | Des Plaines, IL 60016
Broker: Randolph Taylor rtaylor@creconsult.net | 630.474.6441
https://www.creconsult.net/golf-sumac-professional-building-medical-office-space-for-lease-9301-golf-rd-des-plaines-il-60016/