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Where Can Value-Add Deals Still Be Found?
Investment opportunities that allow CRE investors to achieve required rates of return are increasingly tough to uncover, as a result of record-low cap rates in the U.S. That, in turn, is pushing some farther up the risk spectrum into the value-add space.
Value-add plays in the apartment market are becoming scarce, though research by Real Capital Analytics (RCA) suggests opportunities still exist among other property types such as industrial and certain office and retail properties. Apartment spreads in the six major metros and non-major metros compressed below their long-term averages, though better returns can be found in the non-major markets.
RCA found that industrial properties in both major and non-major locales ebbed above the long-term line, thus still provide value-add opportunities. Industrial is the only property type posting increases in deal activity for H1 2017. As the industrial market becomes more saturated, price spreads are likely to narrow, predicts RCA’s Elizabeth Szep.
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