Similar to the single-family housing and residential markets, the commercial real estate market can be affected by cyclical trends or a continuous up and down profit business cycle. Investors always keep a watchful eye on how the commercial real estate market, as well as their market sectors, are affected by such trends and changing their investment strategies to fit the most significant profit return mold best.
Michael Eisenga, a commercial real estate investor, has a successful track record in what he does best, along with a banking and finance background. Eisenga says that in today’s commercial real estate market, prices are very high and capitalization rates, or cap rates, are very low, and staying on top of today’s opportunities in the market means further understanding the current and forthcoming trends. The entrepreneur goes into more detail below.
Diving into Today’s Commercial Real Estate Market
It is instances like the coronavirus pandemic that play a prominent role in how today’s commercial real estate market is currently perceived. The COVID-19 outbreak forced businesses to adapt to remote working to continue to stay afloat. The reality of employees working from home and companies not returning to the offices at scale makes investors rethink the idea of investing in office buildings and long term-commercial leases. However, there are predictions that office spaces will make a comeback as more people receive the coronavirus vaccination and return to a once familiar typical work environment.
Mike Eisenga says that in today’s commercial real estate market, prices are elevated. At the same time, cap rates are considered low, and those investing should lock in rates for as long as possible to stay protected against possible rising interest rates. When Eisenga says to lock in rates for as much time as possible, he means five years or more.
Regarding the debate around which sector of is the best overall all area to be, I believe industrial is in the highest demand in the present commercial real estate market. However, Eisenga agrees with the discussion about staying away from investing in offices and being wary about investing in retail. While investors are keeping tabs on “dark stores,” it is good to keep in mind the continuing rise of online shopping and the boost online sales had during the pandemic while many retail stores had to close their doors to the public. “Dark stores” are distribution centers or retail outlets that have entirely reworked their operations around curbside pick up and shipping only.
2021 Trends and Predictions
If choosing to invest in the commercial real estate market, a great first step is always to contact and speak to tenants in buildings of interest to find out if those tenants are happy where they are and plan to stay. In addition, check with a separate leasing agent to find out the rent price for that space if a tenant vacated or chose not to renew their lease. Also, intelligent investors are selective and use an attorney who specializes in commercial real estate.
Eisenga notes that Assisted Living is an excellent area to invest in, though higher construction costs can be present and have an adverse effect on the returns one can make in the industry. Assisted Living is also a highly hands-on management-intensive business and is different from passive income from NNN (triple net leased) shopping centers or industrial properties unless the plan is to retire the facility out to a third-party operator. However, if a third-party operator is involved, investors should be careful to verify their financials and ability to pay.
Hotels and hospitality present some opportunities in distressed properties from the coronavirus. But like Assisted Living, hospitality is also more management intensive, so investors should be aware of the commitment. New investors should remember that if an experienced operator cannot make it work, chances are an amateur will not execute successfully.
About Michael Eisenga
Mike Eisenga is a successful commercial real estate investor with a banking and finance background and is the former mayor of the City of Columbus. As a President of both American Lending Solutions, a mortgage lending company (he founded and operated from 2000 to 2018), and First American Properties, he has a track record of creating and operating successful businesses. Mr. Eisenga is also devoted to property development and construction, primarily serving smaller local communities. Especially in the senior housing sector.