The assumption that the path to high realized portfolio returns is simply the sum of a series of high individual targeted returns is a recipe for disaster. Despite this, it is tempting for investors to take information at face value. This is why it is common for less sophisticated investors to fall prey to what I refer to as the “Returns Fallacy”. In this article we describe the Returns Fallacy and describe techniques investors can use to improve their realized investment returns.
Knowledge leads to informed decision making. Expand your understanding of commercial real estate with the articles, videos, whitepapers and curated links in the CrowdStreet Education Center. Learn more about the terms used in our glossary.I’m looking for:
Non-traded REITs have come under fire recently for high fee structures and front-end loads that have sometimes exceeded 10-20%. However, if these high fees are removed, the Non-Traded REIT investment structure itself may provide significant potential benefits to investors. In this article we highlight the potential investor benefits of the “next generation” of low-fee, non-traded REITs.
Investors often approach a deal with the same fundamental question – what’s the bottom line return? Yet the answer to that question is not always simple. There are different metrics that paint a picture as it relates to: 1) exactly how much will an investment pay out; and 2) when an investor is likely to see all or part of that return in their hands. While we published an article earlier this year on the definition of cash-on-cash returns, we now take the next step. In this article, we begin by revisiting the definition but then move on to highlight the differences between cash-on-cash yields and cash distribution yields.
A commercial real estate transactions is complex, multi-step process. The benefits to investors of understanding the commercial real estate transaction process are 1) understanding the level of uncertainty at each phase of the transaction process and how execution risk diminishes over time 2) learning to better discern sponsors’ expertise and 3) gaining an appreciation for the amount of work involved for sponsors to bring deals to investors. In this article, we kick off the first of a three-part series on the commercial real estate transaction. Part I will cover the steps from developing an investment thesis to acquisition award (or “winning” the deal).
Oakland’s Uptown neighborhood is in the midst of an major urban renaissance. Capitalizing on an amazing Bay Area location with mid-20th century roots as a shopping and entertainment destination, Uptown Oakland is rapidly refashioning itself into a vibrant “live, work, play” environment replete with great food, jobs, and an arts & culture scene. This renaissance has positioned it in 2016 as, arguably, the hottest neighborhood in the entire Bay Area. From a real estate perspective, this transformation – along with a growing population of Millennials – has landed Uptown firmly on the radar of office users and real estate investors. In this article we highlight the many catalysts driving Oakland’s recent emergence, assess Oakland’s investment opportunities particularly across the Office property class, and provide details on how investors can capitalize on this generational urban renaissance.
Self-storage is a unique asset class. It has a reputation of providing relatively high yields and has also been potentially resistant to recessions due to its lower declines and default ratios vis-à-vis other asset classes. Based on our research, publicly traded self-storage REITs have been one of the top performing sectors in recent years with a good track record of delivering potential dividends and stock appreciation. In fact, our research indicates that the industry has been considered by Wall Street analysts to be “recession resistant” based on its performance during the last economic recession. In this article, we will provide an asset class overview, highlight recent changes in use and conclude with thoughts on how to use this information to make informed self- storage investment decisions.
Commercial real estate investments are subject to shifts in supply and demand that can have a notable impact on net operating income, profitability and yield. Hospitality is one of the few property types where such shifts are felt almost immediately. However, in exchange for a transient customer base that is not obligated to long term commitments, hotels have the ability to mark rents to market on a daily basis. The upside of this flexibility is that hotels can quickly react to heightened demand and improving economic conditions and raise room rates as much and as fast as the market will bear. In value add scenarios, hotel operators are also able to realize improved asset performance from repositioning efforts or capital improvements more quickly than other asset classes. In this article, we will provide an asset class overview, explain the key metrics that are used to evaluate hotel performance, highlight recent changes in use and conclude with thoughts on how to use this information to make better informed investment decisions.
The industrial sector is arguably the least glamorous commercial real estate asset class. Over the long run, industrial properties are steady performers, which is why they merit inclusion in real estate investment portfolios. The average annual total return for industrial properties over the past 20 years is 10.6%, which is slightly ahead of the average return of 10.2% across all property types, according to the National Council of Real Estate Investment Fiduciaries (NCREIF) Index. In this article, we begin with an overview of the industrial asset class, discuss demand drivers as well as changes in use and conclude with thoughts on how to use this information in making informed investment decisions.
Multifamily real estate is a widely held and strategic commercial real estate asset class. At roughly 25% of the U.S commercial real estate stock, the multifamily sector now accounts for the second-largest share of institutional investors’ real estate holdings, lagging only the office sector. While previously considered a residential asset, multifamily is now firmly cemented as one of the four primary commercial real estate asset classes (the other primary three being office, industrial and retail). In this article, we provide an overview of the multifamily asset class, discuss demand drivers, highlight changes in use and conclude with a synthesis of these factors to better equip investors with the knowledge to make informed investment decisions.
The U.S. office market traditionally attracts large amounts of investment capital from both institutional and private investors. The sector typically logs well in excess of $100 billion in institutional-quality transactions each year. The National Council of Real Estate Investment Fiduciaries (NCREIF) Index pegs the average annual return for office property over the past 20 years at a healthy 10.3%. In this article we provide an overview of the office asset class, highlight key demand drivers including the role of demographics, and conclude with how investors can apply this information to make smarter investment decisions.
Similar to the broader economy, commercial real estate is a cyclical market. There are four phases to the real estate cycle: Recovery, Expansion, Hypersupply and Recession. One of the unique aspects of real estate is that people can invest successfully across all four phases of the cycle. However, understanding whether a cycle is climbing closer to a market peak, or starting down the slippery slope towards a market low can often mean the difference between a successful investment and a significant loss. In this article we outline the four phases of the real estate market and provide strategies for successful investments at each stage.
Commercial real estate applies a simple grading system to assets to rate overall quality and key characteristics. Buildings are classified as A, B or C, and that ranking is an important indicator to gauge a property’s competitive position in a marketplace and where it fits in relation to market value and rents. In this article we walk you through the different property classes and highlight the investment opportunities specific to each.
The U.K.’s recent vote to leave the European Union unleashed a wave of uncertainty that sparked volatility across global equity markets and has caused a sharp drop in currency value for Britain. In this article, we delve into how Brexit hurts the U.K. from a real estate perspective and then discuss how investors can benefit from its impact on U.S. real estate markets.
Real estate crowdfunding is experiencing explosive growth as investors witness its maturation into an increasingly mainstream form of online direct real estate investing. In this article, we will delve into the top ten reasons investors are adopting real estate crowdfunding and provide details on how to get started with as little as $10k.