Real estate shifts to a cash flow phase
By Jim Fried
My past columns have profiled specific guests on my show, but this month, I wanted to write about the latest phase of the region’s real estate market. It’s based on ideas that many of my guests have expressed during the last few weeks, but sometimes only shared privately.
I have been in the real estate business for over 30 years and have been involved with more than $2 billion worth of real estate transactions. My expertise is creating real estate business deals, not just managing the marketing process.
During the current real estate cycle, I have helped many real estate investment groups capitalize development transactions and sell their urban land. Now, the market is shifting from a construction phase to one focused on cash flow. Investors and lenders are seeking high-quality, predictable cash flow that’s generated from multi-tenant and single-tenant properties.
More recently, the trend is moving toward identifying cash flowing properties for my clients to buy and then helping them to finance the deals.
Well-located, well-anchored retail space with a tenant mix that minimizes exposure to sales on the Internet will continue to be the darling of real estate investors in 2016 and 2017.
Other than retail, investors and institutions continue to chase the cash flow generated by apartment projects. This product type is considered a stable investment that is not subject to the swings of the economy. Capitalization (cap) rates continue to be driven down in this asset class even though people believe interest rates may rise later this year.
A number of the family offices and institutional investors with whom I work are seeking to expand their holdings of individual apartment projects and portfolios of apartment buildings. However, they’re finding it extremely difficult to identify assets in this genre that they can acquire at prices they believe are appropriate. One family has decided to sit on its cash until the market pricing becomes more attractive.
I regularly get calls from families located in cities such as Dallas, Houston, Chicago, Boston, New York and Atlanta looking to buy in Florida, and Florida families looking to buy outside of the state. More often than not, we end up putting two families together and they blend their portfolios, market concentrations and risk profiles. This is becoming an increasingly common solution as investors continue to chase yield.
The most important part of any of these combinations is who will operate the property. The high net worth investors and families with whom we work put the potential operating partner through very rigorous due diligence prior to investing. ¿
I’ve discussed this topic in the past on my show and I expect to have numerous episodes on this in the future. To hear the opinions my guests, you can go to the archives on our website, friedonbusiness.com. You can always hear news and information on our show, every Thursday from 6 to 7 p.m. on 880 AM in Miami.