July 2023 | Volume 3
KNOWLEDGE HUB: INSIGHTS AND INFORMATION
Exploring Different Investment Strategies in Commercial Real Estate
Commercial real estate investments offer a wide range of opportunities for investors seeking long-term growth and income. With diverse property types and investment strategies, it's crucial to understand the various approaches available to maximize returns and mitigate risks. In this article, we will explore some common investment strategies in commercial real estate and the factors to consider when implementing them.
1. Core Investments:
Core investments are considered the most conservative strategy in commercial real estate. They involve acquiring stable, income-generating properties in prime locations with high occupancy rates and reliable tenants. Core assets often include office buildings, retail centers, and multifamily properties in established markets. The primary goal of core investments is capital preservation and steady cash flow. While these properties may offer lower potential for appreciation, they provide stability and lower risk compared to other strategies.
2. Value-Add Investments:
Value-add investments involve acquiring properties that require improvements or repositioning to increase their value and income potential. Investors seek opportunities to enhance property performance through renovations, operational improvements, or lease-up strategies. This strategy often involves taking on moderate risk in exchange for higher potential returns. Value-add properties can include underperforming or distressed assets, vacant buildings, or those with below-market rents. Successful execution of value-add strategies requires careful due diligence, accurate cost estimates, and effective project management.
3. Development Investments:
Development investments involve acquiring land or existing properties with the intent to develop new projects. This strategy is highly specialized and requires extensive market knowledge, experience in construction and project management, and a thorough understanding of local regulations. Development projects encompass various property types, including residential, commercial, and mixed-use developments. While development investments can offer significant returns, they typically involve longer timeframes, higher upfront costs, and increased risk due to uncertainties associated with zoning, permitting, and market demand.
4. REITs and Funds:
Real Estate Investment Trusts (REITs) and real estate funds are alternative investment vehicles that allow investors to gain exposure to commercial real estate without direct property ownership. REITs are publicly traded companies that own and manage income-generating properties, offering investors the opportunity to invest in a diversified portfolio. Real estate funds, on the other hand, pool investors' capital to acquire and manage a portfolio of properties. Both options provide liquidity, professional management, and the ability to access different property types and markets.
When investing in commercial real estate, understanding different investment strategies is crucial to aligning your objectives with the appropriate risk profile. Core investments offer stability and steady income, while value-add investments provide the potential for higher returns through active management and market opportunities. Development investments require specialized knowledge and a longer-term commitment. REITs and real estate funds offer diversification and accessibility for investors seeking a more passive approach.
COMMERCIAL LEASING OUTLOOK
So far this year, we are seeing the majority of leases signed in Columbus, Ohio are small leases. 86% of leases signed are under 7,000 square feet. 50% of all leases signed are under 2,500 square feet. This data is similar to what we saw in 2022.
This data suggests that smaller lease sizes are in high demand, which aligns with Lonicera’s investment strategy. By focusing on small suite sizes, we are catering to the high demand for smaller lease sizes in the market. These are trends we monitor closely to ensure that our investment strategy remains aligned with the evolving dynamics of the leasing market.
WHAT THE TEAM IS READING
Article by Alyssa Mercer
"The Best Ever Apartment Syndication” provides a comprehensive guide to successfully investing in apartment syndications. It is written by Joe Fairless and Theo Hicks, who are experienced real estate investors and syndicators. The book covers various aspects of the syndication process, including finding and evaluating deals, raising capital from investors, conducting due diligence, structuring the deal, and managing the property.
The authors emphasize the importance of building relationships
with investors and creating a strong team of professionals to achieve success in apartment syndication. They provide practical tips and strategies for identifying lucrative investment opportunities, negotiating deals, and mitigating risks. The book also delves into the intricacies of financial analysis, deal structuring, and understanding market cycles.
Furthermore, "The Best Ever Apartment Syndication" offers valuable insights into marketing and investor relations, discussing effective ways to attract potential investors and maintain strong communication throughout the investment lifecycle. It emphasizes the significance of transparency, trust, and integrity in building long-term relationships with investors.
Overall, the book serves as a comprehensive resource for both novice and experienced real estate investors interested in venturing into the world of apartment syndication. It provides a step-by-step framework, real-life examples, and practical advice to help readers navigate the complexities of the syndication process and maximize their investment returns.
FUTURE OUTLOOK
Since Lonicera Fund IV closed mid April, the team has been actively looking towards Fund V. Although we are currently in Columbus and Indianapolis, we continue to analyze deals throughout the Midwest to ensure we are pursuing the best opportunities for our investors.
If you have any questions about Lonicera Investments, our past performance, or our future, please reach out. We would be happy to sit down with you and answer any questions you have!
ANY ESTIMATES OR PROJECTIONS AS TO EVENTS THAT MAY OCCUR IN THE FUTURE, INCLUDING PROJECTIONS OF REVENUE, EXPENSE AND NET INCOME CONTAINED IN THIS VALUATION SUMMARY OR ANY OTHER OFFERING DOCUMENTS, ARE BASED UPON THE BEST JUDGMENT OF THE COMPANY’S MANAGEMENT AS OF THE DATE OF THIS VALUATION SUMMARY OR THE APPLICABLE OTHER OFFERING DOCUMENT. WHETHER OR NOT SUCH ESTIMATES OR PROJECTIONS MAY BE ACHIEVED WILL DEPEND UPON THE COMPANY ACHIEVING ITS OVERALL BUSINESS OBJECTIVES AND THE AVAILABILITY OF FUNDS. THE ESTIMATES AND PROJECTIONS NECESSARILY MAKE NUMEROUS ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS, TAXES AND OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. THERE IS NO GUARANTEE THAT ANY OF THESE PROJECTIONS WILL BE ATTAINED. ACTUAL RESULTS MAY VARY FROM THE PROJECTIONS, AND SUCH VARIATIONS MAY BE MATERIAL. THE COMPANY HAS NO OBLIGATION TO UPDATE OR OTHERWISE REVISE THE ESTIMATES OR PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING OR DEVELOPMENTS OCCURRING AFTER THE PREPARATION OF THE ESTIMATES OR PROJECTIONS OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.