If you are preparing to finance a commercial real estate investment, you are in an unprecedented market where capital is available across many different platforms offering both traditional and more creative opportunities to finance a commercial real estate acquisition. Securing the appropriate financing for your investment project is a critical part of the acquisition process, whether you are a real estate investor, an owner occupied building owner, or a net investment seeker.
Following are a number of options available to commercial investors. Working with a commercial broker is the best way to navigate these options, and nail down the right mix of financing and capital injection.
Since 2015, capital coming from foreign investors eclipsed $91 billion dollars. This capital option is used primarily in major metro areas, but we are now seeing this trend in the secondary and tertiary commercial markets as well, with China placing over $17 billion alone. Overall, China invested almost $208 billion in Commercial Mortgage-Backed Securities (CMBS) according to Rosen Consulting Group. This capital movement is based on a stronger US dollar, job growth and higher inflation.
High net worth individuals (HNWI) are a great target audience for commercial property investments around the “buy and hold” strategy as they try to go for investments that are lower risk but with the opportunity for higher long term growth. Findings show that most of their investments comes from real estate investment trusts (REIT) and higher portfolio positions. There are now more than 2,000,000 HNWIs in the US alone with over $3,000,000 in net worth.
The commercial real estate market is seeing a major uptick in pension funds buying into long term strategies centered around commercial real estate investments. Pension plans are focused on strong income potential. The focus of these pension plan investments seems to be on the industrial market which has seen a boom in a number of markets due to the growing cannabis and hemp industries and alternative uses for industrial space like breweries. This information is based on projected yields in 2017.
Crowdfunding is a great opportunity for people to invest into outside of the box investments that traditional investors tend to stay away from. The National Association of Realtors (NAR) shows that crowdfunding has opened the door to commercial real estate’s $7 trillion market to 98% of the potential unaccredited investors market.
While crowdfunding investors benefit from tax deductions and lower fees, they do carry a higher risk and longer payout cycle than other investment options. And with millennials coming into the market and leveraging technology it is safe to say that online capitalization is here to stay – the only question is how large the pool will get!
The commercial real estate market continues to become more global as outside investors have been sitting on sidelined money and feel now is the time to get into the commercial real estate market. These investment plays are hitting capital markets at record high rates and are fully expected to increase. When you start to factor in the potential changes at the legislative level we expect continued growth across all of these platforms!
To learn how you can use capital markets to fund your commercial property investment, we recommend speaking with an experienced commercial broker. For more information on this topic or to view listings for sale, visit transworldcre.com or give us a call at 720-574-2953.
Phil Kubat is the Principal & Managing Broker of Transworld Commercial Real Estate, a Colorado commercial real estate firm. Transworld Commercial Real Estate will serve as a strategic partner to clients for commercial real estate acquisitions and dispositions. Phil’s services include real estate advisory, site selection, strategic planning, incentive negotiations, development consulting, and financial analysis. In his spare time Phil enjoys hiking, skiing, golfing, and living life to the fullest!