There are several different commercial real estate (CRE) strategies that can be applied after acquiring a new commercial property irrespective of the property type. One of the most straightforward, effective value-add deals to look for, acquire, and then reposition, is the asset that is starved for capital.
These assets in the United States can offer high ROI to real estate owners after acquisition and reposition.
Many times you can find a well-located real estate investment that is simply not performing because it requires an additional capital infusion. When asset management becomes secondary, real estate assets begin to slowly degrade. We like to identify these properties and work to acquire them when their property value is low, then turn them into commercial real estate properties capable of offering property owners and investors steady cash flow.
Think about a retail center with a large parking lot that is in horrible shape and desperately needs to be replaced. For whatever reason, the commercial property owners have let it go to waste, the commercial property can be revamped or repositioned into a state-of-the-art office building that is capable of housing some of the biggest companies either in New York, San Francisco, Los Angeles, Atlanta, Dallas, etc.
Or think about the industrial property that has been 50% vacant since last year and can’t be leased because the vacant portion of the building’s roof should have been replaced ten years ago by the property management company charged with the task of managing the asset.
The entire success of these two hypothetical real estate assets hinges on the respective parking lot and roof being replaced which as mentioned earlier is the duty of the property management company as a standard parking lot and roof helps increase rental rates not minding if it is an office space, a shopping center, or a residential building.
By simply acquiring that asset at a discount or potentially even at the standard United States real estate market rate, and doing the necessary “work,” you can unlock significant upside value which in turn funds other investment opportunities you may have in mind. Cash flow can be increased and the balance sheet can be saved by doing some basic maintenance on the property either by you or through a suitable property management company.
If you have a proper plan in place for the reposition, qualifying with a financial institution for a Commercial mortgage should not be a huge hurdle.
These properties if carefully managed by a qualified asset management company will do well in the capital market. Depending on the square feet, you are able to make the most out of any capital-starved real estate property either by revamping and selling off or leasing them for annual rents.
One warning; make sure the real estate is good and just starved for capital, not bad real estate that has gotten itself into a distressed situation for no other reason than it is “bad” real estate. Remember, you make your money on the buy with any asset class. From New York to San Francisco, Los Angeles, etc.,a bad deal is a bad deal and you should never settle for it.
If you keep your eyes open and your ears to the ground by searching for capital-starved properties on Google or even going as far as contacting some of the real estate start-ups in Dallas, Atlanta, New York, and other parts of the country, you’d definitely get the best CRE at the best rate. Regularly using these avenues to source your next acquisition target, you may come across your next value-add “lay-up” without having to use too much creativity.
If you have any questions about capital-starved properties, please reach out to the team at First National Realty Partners. Our private equity team is always ready to discuss the various asset classes, CMBS loans, any question you may have regarding commercial properties that are ideal for real estate investors.
NOTICE: This website and the content presented herein is not directed to any person who is a resident of the United States or U.S.-territories or the resident of any other particular jurisdiction. This website and the content presented herein is not an offer to sell or a solicitation to buy securities, commodities, or any other form of investment or product. An offer may be made to accredited investors only pursuant to Rule 506(c) of the U.S. Securities Act of 1933, as amended (the “Act”), by an authorized representative by delivery of a complete copy of an offering memorandum including all exhibits. By using this website, accessing any material contained on this website, registering, requesting a password, or by clicking a “submit” button or the like, I hereby acknowledge, agree and warrant, under penalty of law, that (1) I am an “accredited investor” as defined by Rule 501(a) of the Act; and (2) my typed name on the electronic registration form, if submitted, is my electronic signature and is the legally binding equivalent to my manual handwritten signature.