Take Your Portfolio to New Heights
The Power of Investing in Commercial Real Estate
Potential Benefits of Real Estate Investing
Cash Flow
Inflation Protection
Diversification
MORE THAN JUST DIVERSIFICATION
While the real estate market can fluctuate, it has demonstrated over time to be less volatile compared to some other asset classes. The potential for this stability can be a distinct advantage to investors.
APPRECIATION AND INCOME
Historically, real estate investments have offered some investors a path to wealth through property appreciation and the generation of steady income.
Pursuing alternative investments
Forward-thinking investors should consider alternatives outside of the stock market and public exchanges. Real estate may provide a solution.
Commercial real estate investment considerations by property type
Multifamily
Description:
Residential buildings that vary by location (urban or suburban) and may be further classified by structure: high-rise, mid-rise, or garden-style.
Considerations when Investing:
Economic drivers include demographic trends, home ownership, household formation rates, and local employment growth. Leases are typically short term and adjust quickly to market conditions. Generally considered to be one of the more defensive investment types within commercial real estate, though they are still subject to competitive pressures from newer construction.
Retail
Description:
Everything from small shopping centers, strip malls, and outlets to large power centers with a “category-dominating” anchor tenant.
Considerations when Investing:
Broadly influenced by the health of the overall economy including employment growth, the region’s economic focus, and demand for office space. More local factors include the property location and its traffic flow; population demographics; and local household incomes and buying patterns. Leases also often have long terms, which means that after a while lease rates may lag behind current market rates. Step ups in lease rates may need to wait until lease expirations.
Office
Description:
Range from high-rise multi-tenant structures in city business districts to mid-rise single-tenant buildings in suburban areas.
Considerations when Investing:
Rents and valuations are influenced by employment growth and a region’s economic focus. Individualized tenant improvements are usually not very involved, but credit quality of tenants is key; re-leases of office space typically require some lead time to sign, finalize, and execute. Office properties often have longer-term leases that can lag behind current market lease rates, so that significant “step-ups” or “step-downs” of rental rates may occur when leases expire.
Industrial
Description:
Manufacturing facilities, warehouse and distribution centers, research & development (R&D) properties and flex-space.
Considerations when Investing:
Manufacturing and R&D properties tend to be build-to-suit buildings that can be difficult to “re-tenant” without extensive modifications, while warehouses and distribution centers can be more generic buildings. Industrial properties are also influenced less by local job growth more than by larger economic drivers such as global trade growth (imports and exports) and corporate inventory levels. As with office buildings and retail centers, industrial property leases tend to have long terms, so that over time lease rates can fall behind “market.”
Balancing risk and return
Moving between the three primary real estate investment strategies is a bit like stepping up the ladder in terms of taking on more risk and, in theory, being compensated for that risk with higher returns.
A well-balanced commercial real estate portfolio may include some or even all of these different investment strategies.
Investment Strategies
Core
Value-Add
