Why are the big commercial real estate buyers still in acquisition mode and what are they buying?
Investment groups from all over the world are spending big to plant their flag in the highly lucrative San Francisco Bay Area commercial market. If you were there for the last Bay Area real estate boom you know what to expect and with the whole world joining in this buying spree confidence is at an all-time high. While the Bay Area commercial real estate market has definitely seen a turn around one still needs to understand the market to ensure you’re making the best buying decisions. An example of this would be the recent Shorenstein deal in North San Jose. The 1985-built Rose Orchard complex at 110-180 Rose Orchard Way is just 30% occupied, with 220,000 square feet of available space which happens to be just outside of Sunnyvale and Mountain View. The Rose Orchard complex is the perfect setup for all the support needed for the upcoming industry growth. While buying an almost vacant building to some might be scary the good part is not having a number of long term leases with options based on the markets rates set over the previous 3 year trend. With the building currently at 30% occupancy and no doubt a 3 year trend as bad the acquisition cost at $230 per square foot will be looked back at as a steel. Shorenstein is poised to buy low, own a cash cow for a number of years then unload at a large gain in $ per sq/ft.
Our own property management industry will see a direct impact as this demand for commercial space goes hand and hand with the availability of residential rental space. Increased rental rates will drive an increase in tenant acquisition and full service property management for both new owners entering the market and owners who currently manage their own properties wanting to pass the daily management and stress over to a property management firm.
If you’re an investment property owner do yourself a favor and do the same research as the big buyers by finding out where the best neighborhoods are to buy investment properties. Focusing on areas like price per square foot as they compare to rental rate in each market along with understanding each properties potential based on historical data is key. Understanding all the things that go into your monthly PITI payment + market rate of return + direction of the market = highest rate of return decision. Additional items to think about are any local ordinances that could affect your growth rate, crime rate, commute +/-, distance to public transportation, cities master development plan, etc.
Purchasing and owning is the easy part, managing an investment property is the hard part. Understanding your market competition, max market rental rates, lease terms, etc. can also impact your bottom line. One example of the wrong decision is to put a new roof on a property instead of a new kitchen and bath. We find owners doing things like new windows and new roofs which may make you feel good but are very costly resulting in zero potential for increased rent. People pay for what they see and use so fix the roof, have failed window seals fixed and spend your money where the return is the greatest in both rental amount and resale value.
Property Management it’s what we do!