Many investors may choose commercial real estate investments because they are tangible assets with inherent value.
Unlike stocks, real estate investments are assets with intrinsic value in the land and the building(s).
Economist William D. Larson approximated the total value of America’s land in the contiguous 48 states at nearly $23 trillion, with those values varying widely among states. Investing in a portion of that land may deliver an immediate upside, even before commercial property owners implement value-creation strategies.
Recognizing the wide variance in values from market-to-market, investors seeking stability may benefit from an investment firm or property owner that invests in the epicenter of growth markets in order to maximize both intrinsic and created value.
Appreciation
Beyond their physical value, commercial assets can appreciate, especially under the right ownership.
This means there is an opportunity to garner higher returns when an asset is sold.
Properties will likely appreciate based on market factors such as supply and demand. Further, proactive management can accelerate property appreciation. Property owners that can implement property-level improvements to leverage current demand and maintain high occupancy may be in a better position to deliver strong, steady returns.
Investors interested in real estate securities should seek out a property owner with a strong track record of asset appreciation. Investors should look both at acquisition and disposition pricing and at net income throughout ownership to ensure their investment partner is striving to increase property value strategically and organically.
Marc DeLuca is regional president, eastern region at KBS.