What is most important to a real estate investor these days? – San Bernardino San



You will be amazed at the activity of investors these days!

We recently talked about two types of investors. Investors who buy with their own money and those who don’t. The first is called private and the second institutional. As you know, individual investors usually provide debt as a supplement to their down payment. This allows institutional groups to have a pool of capital ready for deployment.

We started posting last week. So far we have received over 76 requests and 2 offers. The deal is expected to sell at a record price. Here’s another example: a new Class A building – pending completion. A completely one-sided investor offered to buy it on a new lease. It was a record yield and price per foot. Our client said thank you! It is very difficult to find land and build it with the permission of the city. Their plan is to keep this in the long run.

Both of the above are great examples of what is considered most important to investors these days. Indulge me by discussing some of my observations.

In general, motivation starts with money. In particular, the source of these dollars. As part of our new offer, the property owner has acquired a building for his business. He closed the deal in 2013, combining the money he earned with a 90% loan from the Small and Medium Business Administration.

Flash forward. Its business model changed in 2018. I don’t need a warehouse anymore. We found a tenant for him to replace his home. He later turned into a private investor, but previously owned a house.

So why sell it? After all, tenants offer good checks every month. Two reasons. The owner’s move from state to tax-friendly state means that if he sells, he will be exempted from California taxes. Moreover, the market is hot! Grab your boots and buy them elsewhere for better results. What’s the most important thing? Net cash flow is what remains after he pays the bank and income tax.

Now the situation is different with the new Class A lease and the unilateral offer. Let’s start with money.

Until 2019, clients worked with Canadian pension service providers. It was a structured fund with a clear purpose. Win an industrial deal in the infill market (mostly a market under development). Existing structures and areas that need to be reused are taken into account. The dollars invested will benefit retirees in the coming years.

Thus, as new projects are developed and sold, there is a large shortage of investment grade real estate, which creates even greater problems. In other words, where to invest the profit. What’s the most important thing? Long and stable income stream.

Are there any institutional sellers these days? Seldom. People who use Wall Street as investment capital, such as real estate investment funds, take precedence over the amount they are allowed to dispose of each year. Other companies that buy on behalf of retirement funds, such as CalSters and CalPERS, must maintain a certain percentage of the pool in asset classes such as commercial real estate.

Sure, they could have made a lot of profit by selling, but as stated above, what’s next? Cash and Treasury bill returns are poor. What could trigger a sale? Remember our Canadian retirement dollar clients? Usually, when the business plan is implemented (the dollars are laid out), it sets in 5-year, 10-year and 15-year agreements. Thus, we see that real estate with mature underlying assets is on the market. If their time is now – what a great success!

Allen S. Buchanan of SIOR, Head of Commercial Real Estate at Orange Lee & Associates, can contact him at: abuchanan@lee-associates.com Or 714.564.7104..

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