The accessibility of commercial real estate investing opportunities is increasing, due in part to the advent of technology as well as new regulations. The willingness to invest is also increasing, but as is competition. Leveraging data and technology can help to differentiate your firm from your competitors and attract more of those investing dollars.
From opportunity zones to on-market/listed properties to off-market deals, there are more opportunities now than ever before to invest in commercial real estate. But how can CRE professionals locate and execute these potential deals, or even choose which one(s) to invest in? And once they identify the best-fit for their portfolio, how should they go about managing the investment? In a recent webinar, IMS VP of Business Development Ron Rossi, Reonomy VP of Marketing Sam Viskovich, and RSM US LLP Tax Partner Craig Mason, discussed best practices for identifying and managing commercial real estate investment opportunities.
Interest in commercial real estate, from both investment firms and high net worth individuals, is on the rise. When comparing asset classes since 2000, commercial real estate returns have outpaced the stock market by a 2-1 margin. Historically, investors may have invested up to 5% of their available cash into CRE. That number is growing and is now as high as 15% to 20% for some. The size of the market is growing as well. $15 trillion is the total size of the US commercial real estate market today. With the number of participants in the market, the amount of capital available, and the market size all increasing, it is becoming even more critical that CRE professionals use best practices to effectively and efficiently identify and manage investment opportunities.
Types of commercial real estate investment opportunities
An opportunity zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. The size of the opportunity zone market is estimated to be as large as $6.1 trillion. Some of the expected outcomes of opportunities zones are economic development and job creation in distressed areas, as well as tax benefits and incentives for investors. Darren Walker of the Ford Foundation has called the opportunity zone program “the biggest economic development initiative in 50 years”. Reonomy, a commercial real estate data provider, tracks around 50 million assets, over 10% of which fall within an opportunity zone. To learn more about opportunity zones, check out our eBook, The What, Why, & How of Opportunity Zones: A Best Practice Guide for CRE Professionals.
Off-Market vs. On-Market Properties
When searching for your next property, you have two options. The first is on-market or listed properties. Those are any properties that are publicly listed for sale and are usually marketed on real estate listings websites and platforms. An owner or broker will have listed the property at a particular price point and is actively seeking offers. The difficulty the buyer will sometimes experience with these listings is the competition. There will sometimes be as many as 40 other parties bidding on the property.
Off-market properties, also known as unlisted properties, are everything else that is not listed for sale. With more than 50 million commercial properties in the US, the largest listings platforms in the US have maybe 1% of the total supply of commercial and multifamily properties nationwide. The pool of off-market properties is substantially larger than listed properties. With a tool like Reonomy, you can analyze off-market properties in any location. Once you have located what you believe to be a good opportunity, you can attempt to negotiate with the owner without outside pressure from brokers or competitive bidders.
How to use CRE tech to identify and manage your firm’s investments
Tools like Reonomy exist to help you identify opportunities, research property details, and find the contact information of property owners. But once you have identified your next deal and closed on it, how do you manage that investment? That is where the IMS Platform comes into play. The way CRE firms manage and engage with their investors is changing. In today’s on-demand, instant gratification culture, accessibility and transparency are increasingly important. Investors need and expect on-demand, real-time insights into how their money is performing and where it’s going. Transparency enables sponsors to build credibility with their investors, and this open exchange of information ultimately facilitates a smoother transactional process.