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Lending Low-down, Commercial Real Estate Can Still Be a Great Investment

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Author: Insider94 Staff 

Between high inflation, rising interest rates, recession fears and an uncertain stock market, investors have plenty to worry about in 2023. We are already seeing a housing correction in some areas of the country, and in some circles the pundits are raising housing bubble concerns.

However, whether it is a downturn or not, historically those looking to invest do look at real estate investments as part of their strategy to build wealth.

We asked Matt Tilton, President & Chief Lending Officer of Centrust Bank, his opinions on the commercial real estate marketing and if purchasing commercial real estate can still be a great investment. 

Insider 94 – Matt, on the consumer side, we are hearing that it is hard for many buyers to find single family homes. Is the same true on the commercial side for investment properties? As a banker, what are you seeing? 

Matt Tilton – Yes, it certainly has been difficult for buyers in most markets looking for residential housing to find what they are looking for. The inventory is just not there. However, those looking to buy investment properties still have lots of opportunities. We see them every day and enjoy helping them finance their real estate deals. 

Insider 94 – What kind of commercial investments seem the most popular? 

Matt Tilton – It’s interesting! We see, through our clients, very compelling deals with multi-family properties, industrial warehouses, data centers and self storage facilities. Where office and retail properties have traditionally been considered part of the four major food groups for institutional real estate investors, the demand for these post-covid has caused these investors to rethink other property types. 

It’s important to know, that in the “office” world there are two niches that are outperforming general office locations – life sciences and medical offices. For obvious reasons. Healthcare of all types are important and will have strong use demand for the future with an aging population. Within retail, grocery-anchored retail centers continue to do well and we are pleased to have helped clients with these type of deals too. 

Insider 94 – Tell us more about self storage facilities.Why is that a good bet? 

Matt Tilton – It does make a good bet. Storage facilities come with high yields and few headaches. You don’t have to worry about complicated building maintenance, repairs, or capital expenditures. These are simple structures with no plumbing, minimal electrical wiring, and often no HVAC. Many industry experts believe that self-storage units are also recession-proof. Why? Because during recessions people tend to downsize, or to move in with friends or family temporarily. When they do -they need a place to store their stuff. 

Insider 94 – What are multi-family purchases.What is so great about that? 

Matt Tilton – Multi-family real estate investments have some particularly attractive attributes.  They have the ability to adjust rents: Residential leases usually have a one-year term, which means investors can quickly react to rising costs and increase rents accordingly. On the other hand, commercial leases often keep rental rates fairly locked in for five to 20 years. 

Growing Demand: While home prices have started cooling off, higher mortgage rates are making homeownership even less affordable. This means buyers are still being priced out of the market and more people are choosing to rent. 

Insider 94 – Are these types of properties easy to find? 

Matt Tilton – Multifamily real estate values have soared in the past couple of years, making it difficult for investors to find opportunities with substantial upside. However, we love to see deals that employ a value-add strategy. This strategy allows an investor to purchase an under-performing asset at a discounted price and significantly increase its value through renovations, improved management efficiencies and increasing rents. We like to consult with our clients and help facilitate these opportunities when they are identified. 

Insider 94 – Anything else we should know about investment real estate? 

Matt Tilton – Yes, as always, surround yourself with good advisors and do your homework. Even in uncertain times there are good deals to make and real estate plays that help build wealth. I hope if businesses have learned anything from the pandemic it is to pull your banker close and keep them involved. Let them help you and advise you as part of a team you should always be cultivating of good counsel.

To learn more, visit http://www.centrustbank.com or mtilton@centrustbank.com.  We want to add on behalf of Centrust Bank that the information provided here is not investment, tax or financial advice. You should always consult with a licensed professional for advice concerning your specific situation.

 

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