Commercial Investment Real Estate March/April 2019 | Page 29

institutional-quality assets with a core
or core-plus profile in markets that have
favorable employment growth.
Middleton is looking at buying oppor-
tunities nationally, especially in the Mid-
west and pockets of the Mid-Atlantic.
However, Cypert also says that finding
deals with attractive returns on invest-
ment is increasingly difficult, given com-
petition and cap rate compression. “I will
look at 1,000 deals to find one that works,”
he says. “We’re casting a pretty wide net,
and the opportunities at this stage of the
cycle are fewer and farther between, but
we’re still searching.” For example, the
firm has bid on deals recently in Milwau-
kee and Fort Myers, Fla.
Capital Continues
to Target Secondaries
Transaction Volume (in billions of $)
Individual
45
Portfolio
40
35
30
25
20
15
10
5
0
The search for higher yields has fueled
buying activity in secondary cities for
2014
2015
2016
2017
2013
the past few years, and money is still
Source: Real Capital Analytics
focused on non-gateway markets.
However, investors are more selec-
tive in identifying opportunities in those smaller metros. opportunities that still have some meat on the bone, Wil-
Buyers generally are looking for markets that still have liams says. Strategies vary depending on the investor, but
steady rent growth, while avoiding those where rent growth they generally want to buy assets that have some upside
is expected to be flat, notes Paul Waters, CCIM, chief to improve occupancies by making changes ranging from
operations officer at Integra Realty Resources in New York minor cosmetic improvements to more extensive renovation
City. For example, Integra has identified a top 10 list of and repositioning. Some buyers want to acquire a Class C
bullish office investment markets in 2019 based on criteria or B building in a Class A location where they can make
that includes a level pattern of rental rate growth and low improvements, such as renovating the common areas or
variance in rents across submarkets. Aside from Manhattan upgrading elevators, to raise the status of the building to a
and Chicago, that list comprises secondary markets Class B or B+, Williams says.
that include Broward County, Fla.; Jacksonville, Fla.;
“We’re pretty far into the current economic cycle. Many
Las Vegas; Phoenix; Denver; Raleigh/Durham, N.C.; of the core properties are priced to perfection,” Wells adds.
Nashville, Tenn.; and Minneapolis.
“Most investors realize where we are in the cycle, and they
Many secondary markets are seeing big inflows from are looking for more of a story.” That doesn’t necessarily
national and regional capital sources, including many new mean 45
a full value-add, but they are looking for upside with
entrants. For example, Memphis, Tenn., has seen a spike leasing potential, below-market rents, or needed property
40
in interest from outside capital over the past four years. improvements,
she says.
In fact, almost all the significant office sales in the past
For example, a joint venture about 18 months ago
35
year have gone to buyers from Nashville, out-of-state par- between Rubenstein Partners and Strategic Capital Part-
ties, or international investment groups from Canada and ners acquired Precedent Office Park in Indianapolis for
30
Israel. “Cap rates have become so compressed in a lot of $132.7 million. The new ownership quickly announced
the coastal markets, and even our neighboring city Nash- plans 25
for major capital improvements at the park, which
ville, that Memphis presents an opportunity to acquire includes nearly 1 million sf of Class A office space in mul-
assets at a good cap rate,” says Landon Williams, CCIM, tiple 20
buildings surrounding a 38-acre lake. Owners have
SIOR, senior vice president of capital markets at Cushman since rebranded the property as Lakefront at Keystone,
& Wakefield in Memphis.
with 15
several new amenities set to open this summer, includ-
Most outside capital coming into Memphis has focused ing walking paths, fitness and conference facilities, and an
on the city’s urban core, but investors are looking for outdoor
10 lakefront lounge.
CIREMAGAZINE.COM
Entity
5
0
2018
March | April 2019
27