What are some niche CRE assets that are not talked about as frequently?
I can think of some off the top of my head (Data Centers, Golf Courses, Life Science Campuses).
I want to learn more about these interesting spaces, specifically Data Centers and Life Science properties, on the development side.
It seems like a lot of this product is made by REITs, but I am not sure about what sort of financing or capital stack structure these firms take on, as well as who the exit buyers typically are (unless they just want to hold forever).
Any insight would be appreciated.
Data centers and life science are hardly niche nowadays. You've got 4-5 major REIT players in the data center space and a bunch in life science, most prolific of which is probably Alexandria Real Estate Equities.
The most common exit strategy for those assets I have seen is sell to a core fund or net lease fund of some sort that bank on the long term leases.
One mistake I saw a developer made was to build out the tenant space for a data center user and charge an absurd high rent for it. The buildout cost for a data center space can be up to $2K/sf, but the buyer won't pay you for that because who knows 15 years later when the lease expires, what kind of new tech we will have then.
Thanks for the detailed response, very helpful. By niche I just meant not as covered or as popular as traditional core assets.
I would imagine a lot of these would be build to suit type projects, although can’t say I know if data centers can be universally used by most tech companies or if they have to have different specifications.
Yes most developers just build the core and shell and let the tenant (Amazon, Google, etc.) build the power grid, fibers, and such. Re-leasing of data center space will be interesting because we have not seen a full cycle yet. In 15 years when the lease expires, I think even if the existing tenant renews, they would need to rip out most parts amyway to replace with newer technology.
Those aren’t that niche. Cell towers, billboards, climate-controlled warehousing are niche, and I’d argue those are getting much more mainstream now.
Car dealerships is another niche asset I forgot. Within life sciences, I’d say skilled nursing/assisted living/senior housing is more niche, that whole area is interesting.
Assisted living and senior housing was the absolute worst niche I’ve ever worked. Some people love it. I personally thought it was brutal. Tons of extra details and nitty gritty to deal with. Plus it’s a business you are underwriting and real estate. The business side is extremely complicated and senior housing properties either lease up and do well or sit vacant pretty much forever. It was also pretty morbid since your residents are older and constantly pass away.
How about truck and trailer parking. It's a bit restrictive (zoning), seems like there are certain zoning areas. In high demand areas you see these spots renting for $400.00/ month per spot.
IOS (industrial outdoor storage) has been attracting capital in recent years due to its reliable cash flows and relatively low cost to maintain. A lot of construction companies need IOS to operate, but supply has had a tough time keeping up with demand since IOS generally needs to be in a metropolitan area close to road ways and able to accommodate trucks.
Leases are usually true triple net, with the tenant completely responsible for the maintenance of the property. Brookfield bought a $27MM portfolio of properties in Arizona, California, Nevada, and Texas earlier this year.
I would link an article, but apparently I’m too new to this site to do that.
CBRE actually has their own small Golf division which I find pretty cool.
Airports are another niche.
I've thought about airports, and I feel like with the smaller regional ones there's a play to be made. Also, adjacent to airports are "fixed-base operators" and that whole industry, that would be interesting too, probably some kind of triple-net thing.
from what I understand most airports have their own retail leasing teams, and the airport itself actually owns the retail inside of it (subsequently...). How can real estate investors get exposure to this?
Parking garages/lots, not super niche, but not that big as others.
Parking garages are often very poorly managed and if you are in the right market it is very easy to capitalize on this. I.e. installing new equipment and cutting staffing costs, raising below market rates (only need a 30-day notice to do so for monthly), bid out the operations to lower fees, marketing properly. We raised rates twice in 2019 for a garage in a booming city (think Austin, Nashville, etc.) due to occupancy issues. Was killing underwriting until COVID.
Yessir. My buddies grandfather used to own the lot on the east side of Yankee Stadium back in the day. Cashed out more than he and his family could have ever imagined.
RV/Trailer Storage, can charge extra for water/electrical hookup. Cold Storage, bullish trend for grocers & e-commerce. Marinas/Boat Slips, can be standalone or attached to multifamily/condo.
Cell Towers.
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