According to this article in National Real Investor those with money in private equity are planning to invest in – you guessed it – real estate. According to the article, 41% of investors plan to increase their investment in the sector while 15% say they will maintain and 15% are unsure of their strategy. In the longer term the survey referenced in the article reports that 75% of respondents are optimistic about commercial real estate as an investment class.
What this tells me is that the pendulum is beginning to swing the other way: instead of running from the fire, investors are now sensing a fire sale. Areas that will be of interest will clearly include distressed equity but also senior debt positions.
From the tenant’s perspective this is generally good news because a sense of panic by ownership creates irresponsible property management practices. Investors who have bought “right” and who are optimistic about the future focus on increasing value in their properties. Taking care of good credit tenants is at the top of the list in creating and enhancing value.
The other issue to be aware of as a tenant is the effect investor optimism has on real estate cost (i.e. lease rates). As we have said on this blog in the past, now is the time to try and lock in low real estate lease rates. The National Real Estate Investor article above simply adds credibility to this assertion and in my mind an additional sense of urgency.
We forecast a window of opportunity for roughly the next six to nine months. After that time, (and depending on which city your facility is in) concessions will ease. It will be some time before asking rates actually rise, but most sophisticated real estate tenants evaluate opportunities based on the net cost (including concessions). So from that perspective real estate cost will begin to ease up later this year from their current inflation adjusted lows.
The bottom line is that happy, optimistic landlords are great AFTER the lease as been signed!