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Our Take: Tips to Your Success in Investing in Commercial Real Estate

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Our Take: Tips to Your Success in Investing in Commercial Real Estate

By: Chris Sadler, President, Allegiancy

March 14, 2015

Reality Biz News recently shared Tips to Your Success in Investing in Commercial Real Estate, writing: “most people start their real estate career investing in residential properties. Eventually, they look to commercial investing because it is much more profitable. Before you jump into commercial real estate, there is very different information you need and a different approach compared with residential investing.”

Having spent several decades in commercial real estate, I completely agree with this writer’s statements. Commercial real estate is a different animal from residential real estate, and it does require a different skill set, a different approach, and a more acute awareness of economic and demographic trends that will affect your investment.

To amplify his points, here’s my recommendations for investing in commercial real estate :

In most cases, investments in commercial real estate are long-term, meaning you should expect your investment to be affected by more than one economic cycle. You have to be prepared for both the good and the bad within each cycle.

We at Allegiancy typically manage commercial real estate for the long-term – viewing it as more of a marathon than a sprint. We have learned from experience how to capitalize on market opportunities created by the highs and the lows of a cycle.

For example, we believe that interest rates are incredibly attractive right now. As a result, we are re-financing several properties in advance of their loan maturities, even though there is a cost involved. We’re doing this because strategic refinancing will pay for itself in less than two years, and it positions our properties to be successful for the coming decade.

You need skilled professionals managing your asset, ones who are focused on your type of property.

For example, we at Allegiancy focus on commercial office properties. We know what we know, and we stick with that.

We recommend that owners find a management team that’s well-versed in your particular property type. If you’re buying an apartment building, find an asset manager who specializes in that asset type.

Someone has to deeply understand and monitor the markets where you have commercial properties.

At Allegiancy, we know how our assets are positioned within a given market. Because of this knowledge, we are able to predict how these assets will be affected by changes in the landscape.

For example, for one property we manage, we saw increasing vacancy rates in its overall market. We were concerned because increasing vacancy usually corresponds with downward pressure on rental rates – and less income for investors.

So before this trend could take hold, we approached our property’s two major tenants who had upcoming lease expirations during the time that would likely be affected by lower rental rates. We were successful in extending their leases by offering them incentives — incentives that cost far less than the cost would have been had we waited until lease expiration. As a result, that property has weathered the downturn with no interruption of cash flow.

It’s important to find an asset manager who understands your financial goals.

It is certainly possible to profit in commercial real estate investing with a short-term strategy. You just need to make sure your goals are clear, and that you’ve clearly communicated with your asset manager.

At Allegiancy, we have built our business on taking care of the commercial real estate investor. We treat your capital as it deserves to be treated. We understand that you had to work very hard to earn it, and we work very hard to help you see it grow.

In short, investing in commercial real estate is not for the faint-hearted. But for those with clearly defined financial goals, an understanding of the differing markets, and a strong partner, it can be quite rewarding.

Chris Sadler manages commercial properties that have outperformed their peers by 45 percent since 2006. The company has approximately $300 million in assets under management and delivers clients attractive returns and profitable, hassle-free investments in commercial real estate.  Allegiancy grew by 62 percent last year, largely due to referrals from satisfied clients.

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