Alternative Strategies for Shopping in Primary Markets
National Real Estate Investor reports: For those investors not quite ready to leave the safety of primary markets, or dip a toe in the secondary asset pool, an alternative strategy has been to pursue Class-A buildings in the nation’s leading markets that are decidedly value-add opportunities. Properties with such burdens present investors with a cheaper entry into these otherwise competitive and pricy markets, where leasing and rent trends are more likely to begin growing again. Real Capital Analytics (RCA) Global Chief Economist Dr Sam Chandan described those current market dynamics in stating that, “Tenants moving into higher-quality space have propelled leasing activity in many markets,” however, “…investors are chasing yield in a broader range of properties and wider selection of cities despite the fragile recovery, while core buyers bid up prices in major markets.”
Buyers of vacant space describe their line of reasoning as such: “They’re purchasing buildings at a low enough basis to withstand slow growth while positioning themselves for handsome profits when better times return. If need be, they’re in a financial position to absorb lower rents as existing leases roll over in order to maintain occupancy.” A recent article on National Real Estate Investor Online described several recent deals where buyers have leapt at the chance to own in primary markets, even accepting vacant space to do so.
The same article, discussing this nascent trend among investors who are refining their core strategies, cited data aggregated by RCA in stating that, “The willingness to buy risk in select assets and markets follows a robust rebound in office sales last year. Roughly $41.6 billion in office assets in the U.S. traded hands in 2010.” Of this total, about 24% of all transactions occurred in Manhattan and Washington, DC, while cap rates for office space in the latter plunged from 7.7% in 2009 to 6.3% in 2010 and the former’s touched 5.5%. Speaking to those statistics, as well as the terrific recovery in primary markets in general over the past year, RCA Managing Director Dan Fasulo commented that, “If we’re not there already, we’re rapidly approaching a situation in which there’s just too much money again and not enough assets to go around…It’s remarkable that it has happened so quickly.”
View the full article on National Real Estate Investor: Alternative Strategies for Shopping in Primary Markets
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Posted by: Nina Turner