I recently published an article in the SIOR Professional Report Magazine. Its about how to find real estate deals using GIS and property data. A copy of the article in PDF format is here:
Dear Industrial Building Owner,
Things have changed over the past few years. It used to be that the User was the best buyer to purchase your property. But that’s no longer true. Investors will now pay a higher price and they have much better skills in getting the deal closed. I’m not talking about every investor but particularly the ones that have all cash and are financed by pension funds and REITs. Lucky for you and I, there are many of them out there right now. In fact, at almost every real estate meeting, there are 10 or 12 top tier buyers all vying for deals.
At one time these top tier institutional buyers were very selective and only wanted the newest and best buildings. While that’s still the case, they are so needful for product that they will buy many lower grade properties than ever before. The ability to install loading doors and to park trucks is a strong criterion. However, if the buildings are leasable and are located in prime markets, these top flight investors are buying.
Before the recession, institutional buyers were buying because of the famous port/gateway story. Any buildings that can serve the Ports of Los Angeles/Long Beach were in their sights. But after the Great Recession, this trend greatly magnified. For one thing, leveraged entrepreneurial buyers were knocked out of the market because of their inability to qualify for bank loans. This left the field primarily to those buyers that manage real estate investments for pensions, insurance companies and REITs.
Something else crazy happened. Monetary policy ran interest rates down to almost nothing, so all of a sudden a 5% or 6% yield on real estate looks good. And as you know, the lower the yield, the higher the purchase price. Plus, most pension plans are underfunded so the plan operators need to find yield and fast. That explains why industrial real estate prices have rebounded quite nicely. It’s a market quirk, related to Federal Reserve market distortions, that I haven’t seen in thirty years of brokerage.
When you look over the broad industrial building landscape, many building owners have already succumbed to the allure of institutional buyers. And why not? They have a ton of cash, know how to work through problems, will purchase vacant, or with short and long term tenants. The best live by their word and although every nuance is documented, they are repeat buyers who preciously guard their reputations. Perhaps their only fault is the need for size. Bigger is better because of the amount of funding that needs to be placed. 50,000 Square feet is a general cutoff, although some insist on much bigger.
While deals are never simple, having a large pool of tremendously qualified buyers is great for business. It simply comes down to finding the deal and that is much easier said than done.
Jim Klein, SIOR