Commercial Real Estate Investors Find Lessons in Private Equity Firm Flops

COMMERCIAL-REAL-ESTATE

The Counselors of Real Estate May conference saw a panel of experts painting a picture of an improving market with sizable pent up investment demand. The question is where is the best place for investors to put their money to work and how?

The demand may be there, transaction volume picking up and massive amounts of international capital looking for a home in U.S. property. However, the revelation of giant multi-billion dollar private equity firm Colony’s miserable 55% rental property occupancy rate, definitely means investors need to be wise about where and how they invest.

REITs and private equity funds have enjoyed lots of media attention over the last year, but that doesn’t mean that they have it all right or should be copied.

It may be shocking to some greener investors to here of vacancy rates this appalling in a market that is supposed to be red hot. It would be if the problem wasn’t already foreseen, and contained to these types of firms and their investment strategy.

What it boils down to is that single family rentals are not necessarily the easy ride. Rehabbing, renting them and property management of vast swathes of single units brings big challenges, big costs and when properties are being picked up in their thousands clearly proper due diligence isn’t being executed.

The second lesson here is that putting total control of your investment decisions in hands of someone else that is not experienced in executing what they are trying to do can be dangerous. These are basic amateur mistakes out of a need for volume, and strategies that burned so many investors when the last bubble burst.

OK, so the U.S. residential or commercial real estate markets are not bubbling, but how can you capitalize on market and enjoy more security and better returns?

Commercial mortgage lending is easing. Delinquencies are down dramatically in 2013 and loan payoffs are up; creating more liquidity. With increasing appetite for making bridge loans in addition to rise in popularity of crowdfunding it has become a whole lot easier for small investment groups and individual investors to acquire attractive multifamily properties. So know that you can invest directly and put together your own deals if you do a little shopping around for capital.

Special servicers handling non-performing commercial real estate loans are ready to cut deals to keep bolstering liquidity.  Between these short payoffs on distressed properties, combined with attractive rates, and for multifamily investors in MA improving occupancy rates and property values steadily climbing, there are some very exciting investment opportunities.

However, it clearly all comes down to quality property management. Let a full service property management company that really has a handle on it and knows the best moves to make from extensive hands on experience take care of leasing multifamily units, building maintenance and all those other pesky tasks which are best put on professionals; reducing your liability and freeing you up to do more golfing or traveling instead of fielding tenant complaints.