Per Andrew Carnegie,“more money has been made in real estate than in all industrial investments combined.” In addition to institutional investors and real estate companies making real estate investments, there is an increasing number of individuals and family o ces that are actively involved as well. Successful real estate investments not only provide income but offer stability in principal. Investors seeking a more diversified portfolio, often seek out passive commercial real estate investments for income and appreciation. There are, however, many factors to consider when making these investments.
Active or Passive:
Many investors seek passive investments by acquiring triple net leased properties that require no maintenance for the investor. The tenants are contractually liable to pay for maintenance, taxes and insurance on the property. Based on the credit-worthiness of the tenant, the yield on these properties typically range from 4.5% to 9%. Lease agreements with national, credit rated tenants yield lower returns than those with companies of lesser credit and/or local tenants but offer greater security.
Higher returns can be achieved with multi-tenant retail, office, industrial and multifamily properties but require more management responsibilities. These duties include accounting, property maintenance, capital improvements, etc. and are typically handled by the managing partner of the controlling entity. As a licensed commercial broker and investor myself, I have created and invested in dozens of limited partnerships for multiple types of commercial properties.
As the number of tenants and properties increase, you will also need an experienced property manager and leasing agent. Numerous individuals invest in limited partnerships created by real estate professionals seeking to raise additional capital along with their own investment. Seeking sophisticated groups of professionals with proven track records is imperative and will mitigate the risks involved in these investments. Typically, there is a guaranteed rate of return in addition to distributions of additional net income to the investors on a pro-rata basis.
As with most investments, there are many options when investing in commercial real estate. Retail, office, medical, industrial and multifamily properties each have their pros and cons. Multifamily properties have remained in strong demand due to their relative stability of income. Office and retail properties have both experienced more volatile swings in their returns due to changes in the marketplace at various times. While the overall retail sector is experiencing rising e-commerce sales, the South Florida retail sector has remained relatively stable. The continuing influx of population to South Florida has served to help the retailers operating in this market area. The lowest vacancy rates, however, continue to be in the office/flex/warehouse space in South Florida with vacancies currently at approximately 3%. A considerable amount of my time involves assisting my clients in evaluating various alternatives based on their investment timeline, risk tolerance level, geography and size of investment.
A commercial real estate lease agreement should also be viewed as an investment and, of course, a liability. There are numerous lease provisions that will make a lease agreement a beneficial asset to the tenant, however, one must also be acutely aware of provisions that can create huge liabilities to the tenant such as maintenance, repairs and rent increases. As a licensed real estate broker for almost 30 years, I can assist you in evaluating your investment strategy as well as ensure any lease agreements you execute will inure to your benefit.