Most/Least Attractive Risk Adjusted Returns (which property for long term institutional investment)?
Wanted to see what the forum thought. Given where we are at in the cycle. If you were going long (i.e. 10+ years) which property type would you peg the best and least attractive in terms of risk adjusted returns.
For shorter term (under 5 years), what investment strategies do you think have the most merit?
LT best = infill industrial.
^Good industrial is the way to go long term, even short term if BTS deals are still out there.
I'm bullish on the secondary markets for long term holds. Cities/towns that are maybe 15-30 minutes outside of the CBD. Specifically class A/B multi-family and MAYBE shit office parks that can be converted into something that appeals to present day office tenants.
Best industrial, worst suburban office
Best industrial worst multifamily or retail
Elaborate on retail?
IRRelevant- why no multi?
I think over a period of 10 years some of the drivers for MF will slow or end. For example I think millennials and young professionls will move to the suburbs and get sick of living in 600 SF apts. Basically I'm questioning the current investment thesis for MF and saying maybe it's just a fleeting trend and not a true shift.
Add that to many markets being overbuild with absurd high-end product in shitty school districts and that will lead to a supply glut which impacts rent growth (negatively). And as we know low to no rent growth will cause cap rates to expand.
This is all 100% my opinion. I know there are a lot of MF developers on here who have a hell of a lot more expertise on this topic than I do but that's how I see it from the peanut gallery.
I agree completely on your first point. As I'm looking to get into NYC market, when I eventually do, I will be finding a place with my GF. We're thinking why should we go rent a 500sqft apartment in NYC when 10 mins out we can get a nice place in say Weehawken for more space and less money. You're seeing it a lot now.
Although, developers are scooping up land left and right out here in NJ and building these luxurious developments with astronomical rents. The supply will exceed the demand at some point. Not sure when but I'm not paying 2K for a studio for an apartment along the NJ Turnpike.
To clarify, are you saying class A infill multi is at risk or all multi is at risk?
If anything, Class A infill is the least at risk. If/when multi gets overbuilt, Class A in good locations will hurt, but lower class in poorer locations will get wrecked when the class A infill starts offering concessions
I have always thought that Class A multifamily would be the most at risk. A life long Class B renter (teacher, medical assistant, blue collar worker etc.) likely still won't be able/willing to afford class A product even if they offer 1 or 2 months of free rent and a 10%+ reduction in asking rents. Given current construction costs I'm not sure if rents at new Class A properties can go low enough to attract people who normally live in Class B product.
A 2014 vintage Class A Houston infill property I worked on struggled to lease up and retain tenants while nearby Class B product were well above 90% occupancy. The Houston market has obviously been struggling and is a bit of an outlier when compared to many other major MSA's, but I always assumed that is how other markets would respond as well.
As I type this out I guess this could vary greatly from market to market depending on how much new supply comes online. I could be way off base, but it's an interesting thing to think about right now.
1) Millenials getting older and looking for more affordable options outside of NYC. 2) Self driving cars will reduce traffic and make commuting from the suburbs more desirable. 3) East Side Access project will save +150,000 people 20-40 minutes off their daily commutes.
I'm long on Long Island MF. Now if only I can find some decent inventory within a 5 minute walk to an LIRR station. Let the FLID parade ride on!
Industrial for sure.
Best: class B multifamily "workforce housing" assets or infill industrial
Worst: suburban single story office
Everyone is bullish on industrial. At the risk of sounding ignorant, why is industrial a darling? What factors are coming into play here? Certain segments better than others (i.e. warehouse vs manufacturing vs R&D vs flex etc)?
One thing I've heard from my buddies on the debt side is that their portfolios contain nowhere near enough industrial. They're way overloaded on MF and high enough on office but industrial has been the red headed step child for so long that they don't have enough debt out for it.
That also plays out in the market. A lot of industrial is trash from the 60's and 70's. Some of that even is getting turned into hip lofts and whatnot. With online shopping continuing to grow and distribution becoming more and more important, there is a big need for massive, modern storage space. That doesn't even get into the specialized stuff like data centers and manufacturing.
Is demand for heavy industrial space (i.e. manufacturing) something that the industrial pundits view as real demand going forward? I get the whole e-commerce angle which simultaneously hurts brick-and-mortar retail space while creating demand for distribution space as supply-chain and logistics become more advanced. Is the driver behind industrial really focused on warehouse/distribution space?
You have some buildings being taken off line and converted. What about ground up industrial (not BTS) development? Can anyone comment on whether there is lack of developable land in "A" areas for industrial? I'd think that the land that is being bid on by developers would not be getting attention from apartment/office/hotel developers, thereby not driving the values up so high that it makes development unfeasible?
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