A Statement On Ukraine from Kevin Maggiacomo, SVN President and CEO

Loading...

Why Millennials Should Embrace CRE Investments

This post was originally published on the SVN | Graham, Langlois & Legendre blog. 

In my first couple of months working here at SVN | Graham, Langlois & Legendre (SVN GLL), my mentors and colleagues introduced me to the many sides of commercial real estate (CRE). Each facet of CRE holds its own individualized characteristics that make different property types unique. I believe that many millennials, like myself, have yet to realize the vast opportunities that CRE investments hold. In the following article I talk about the fears many in my generation have, and offer reasons why CRE investments are appealing and something Millennials should really consider.

Millennials’ Reservations

Millennials CRE InvestmentsI’ve observed that the concept of CRE investments carry a pretense of the dreaded idea of “debt” among my generation. Millennials seem to believe that these opportunities are too overwhelming and are better left for the future. Having observed the market crash in 2008, this generation is often hesitant about spending money on investment properties. We find it easier to simply set our money aside in savings. However, investing in commercial real estate is not something that we should be intimidated by at all. Quite the contrary! CRE investments should be something that we look to as a profit tool.  It should be viewed as an opportunity to put our money somewhere that can appreciate in value.

Change

Contrary to what we many may think, millennials and CRE investments share several similarities. Chief among these, in my opinion, is the concept of “change.” One of our generation’s trademarks is our tendency to seek out new ways to improve the previously established systems. Change is often something that millennials embrace. It’s also something that occurs often in the world of real estate. Our generation should be looking to real estate precisely for this reason. Millennials should be tapping into this market as a tool to shore up our investment portfolios and to shape our communities where we live.

[bctt tweet=”Millennials embrace change. Change also occurs often in the world of real estate.” username=”svnic”]

Community Development

CRE investments empower investors to not only create profit for themselves, but also to stimulate the growth of their communities. Commercial real estate investment allows for new business ventures to move in, and for those previously established businesses to expand. We can’t afford to continue selling ourselves short by missing out on these opportunities. The processes of buying and selling commercial real estate are in continuous motion. This ebb and flow allows for both development and redevelopment of our communities, which should appeal to millennials.

Get Excited About CRE Investments

Now, commercial properties are not only profitable, they are relevant to our lives. investing in CRE is exciting! And it’s time millennials get excited about the opportunities CRE provides. Thinking of real estate in these senses, we should be on the lookout for opportunities to invest in commercial real estate. The realm of CRE investments is not consigned to older generations. All too often, a world of financial opportunity that is available in commercial real estate is overlooked or deliberately unexplored by millennials. These opportunities come in unexpected forms, so be sure to open up to unexpected possibilities. Embrace what is different and challenging. It may be the investment of our lifetime!

[bctt tweet=”It’s time #millennials get excited about the opportunities #CRE provides” username=”svnic”]

Early Summer 2016 Commercial Real Estate Update

Investing in Commercial Real Estate for Stability

Present economic conditions are teetering on the edge of flat to very slow growth causing rising fears of a sustained slowdown. The catalysts of these issues are reductions in employment and investment in energy production and a general tapering of demand from overseas. The result to the United States as of June 2016 has been three months of below 200,000 hiring (only 38,000 in May), below 1% GDP growth (0.8% annualized in latest first quarter estimates), and flat growth of corporate profits. Not surprisingly, some investors are worried.

Charlotte - July Economic Update
Charlotte, NC

Those making the jump to say that slow economic growth equals a real estate downturn, or even the feared “bubble” should stop and take stock of the fundamentals. Occupancy rates for all major categories of commercial real estate, even apartments, are stable and improving nationwide. In fact, a recent Yardi Matrix report even states that the “worst” major metro it tracks is Houston, and its apartment occupancy rate is still 94.7% where energy price pains are the worst. Rents are generally still growing for all property types as well, even apartments. This point was also made clear by the same Yardi Matrix report stated that nationwide rents hit another all-time record high in May of $1,204 per month. If rents are rising and so are occupancies, then there is one simple conclusion; demand is still outpacing supply. That is a buying sign, not a selling sign, all else equal.

Supply Not Matching Increasing Demand

New supply, which has increased in the past few years, especially in the multifamily sector, may have trouble expanding in the future. Lenders appear increasingly stringent in providing development financing and labor and construction costs are not predicted to slow their perpetual increases. In fact, the internal, less discussed measures from the government jobs report show that hourly labor costs rose 3.9% in the first quarter. Thus, it appears that a part of the slowing pace of hiring is a cost constraint; not necessarily a falling demand issue. Developers of real estate have known this pain for years; they repeatedly tell stories of projects delayed and slowed due to labor shortages. For the commercial real estate market, this means that the supply and demand balance is likely to remain in favor of landlords, even if user demand cools moderately.

Those considering investing in real estate should look at these facts; solid fundamentals, low levels of new supply, and low interest rates when analyzing the next acquisition. Yes, it should be noted, that one great benefit of tepid economic indicators is remaining low interest and borrowing costs. The Federal Reserve is far less likely to push interest rate increases in 2016 than earlier thought and borrowers should take advantage of this. Plus, the real return to bonds and stocks is likely to drag lower compared to real estate, especially when considering the global exposure of many publicly traded companies. Real estate can provide a real income yield, supply and demand suggests that it can grow, and best yet, it can grow with inflation when and if it starts back up. Real estate offers income and stability in these types of economic climates; even REITs have outperformed the general stock market in 2016 to prove the point.

Investors Seeking Affordable Stability

Austin - Economic Update
Austin, TX

There is one theme that investors should keep mind, that is “affordability.” Rents can only rise as high as incomes (personal or business) can support. Growth patterns show people and firms moving from high-rent “24 hour” cities (New York, San Francisco, Los Angles for example) to lower rent “18 hour” cities (Nashville, Charlotte, Orlando, Phoenix, Austin for example). Thus, while the major markets have been the leaders in the past few years, it’s logical to expect the “secondary” markets to be the relative winners for the next several years. If a property provides great value and utility at a relative “affordable” price point; then it is best positioned to provide stability in all economic environments.

In conclusion, it would be a mistake to equate minor economic jitters with impending doom, as many on television like to do. The United States went through a significant downturn from 2008 through 2012, but frankly hasn’t grown that fast since. Thus, the economy really is not possibly “overheated” as it was last time. Since commercial real estate is undersupplied on a relative basis, it may actually be one of the best investment categories in the near to long term; a totally different starting point than in 2008.

To learn more about the current CRE market and economic conditions, read the SVN Commercial Real Estate Cooperation Report here.

[bctt tweet=”There is one theme that investors should keep mind, that is affordability #CRE” username=”svnic”]