Friday, March 3, 2017

Do you have any tips for investors on the best types of properties or what to look for when deciding if a deal is right for them?

“Investors should be equipped with the proper set of tools to evaluate risk when contemplating a commercial real estate investment.

The detail page of offerings on the CrowdStreet Marketplace contain the following types of information, all of which are intended to allow investors to examine all aspects of an investment opportunity and make informed decisions:

1. Quality of Sponsorship - CrowdStreet believes that good commercial real estate investments stem from high quality real estate operators.

Therefore, a recommended starting point when evaluating an investment opportunity is to analyze the investment manager.

The company’s website is a good place to begin and things to look for include:

1) depth and breadth of leadership team experience

2) track record and

3) investment product alignment with experience and expertise.

2. Structure - In general, the higher the position of the investment in the capital stack, the more risk the investor assumes. This is why a lender may offer senior debt at 70% of loan-to-value on a property at a 5% interest rate while the equity investors that comprise the remaining 30% of the capital expect annualized returns of 15% or greater.

Therefore, a good place for an investor to start when thinking through an investment is to decide if he/she is willing to accept “first dollar loss risk” in a property in exchange for the potential of solid double digit annualized returns or instead, seek an investment at a lower position in a capital stack (such as preferred equity or mezzanine debt) and accept single-digit to low double digit annualized returns.

3. Location - Instead of the simple adages often applied to the importance of real estate location, we feel that an investor can benefit by thinking through location by asking him/herself the following question, “will the physical asset remain relevant at this location and in its current format for the duration of the intended holding period?”.

For example, redevelopment opportunities are intended to cure an irrelevant format while arguing that the location is still relevant and will remain so indefinitely.

From a macroeconomic perspective, consider factors such as job growth, population growth, population migration and infrastructure development trends.

Knowing where people live and work in the asset’s metro area and where people will increasingly (or decreasingly) live and work in the future are important considerations when making a real estate investment decision.” 


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