Income Properties come in two flavours
Searching for investment properties in Naples and Southwest Florida, like much of Florida and the US, can largely be split into two categories: distressed and troubled assets, and “core” assets. The distressed assets, largely bank owned or soon to be bank owned can be distressed for a variety of reasons, some can be overcome and some properties are unfortunately just not meant to be. The financial debacle of the past five or six years have made a lot of secondary properties distressed as rent rolls have been severally damaged and vacancies rose. Core assets are those that have strong tenants and rent rolls and throw off predictable income.
Of course, its every investor’s wish (shall we say wishful thinking) is to find a core asset at distressed pricing. It’s an admirable desire, one that’s shared by us all, but I’m telling you right now it just isn’t going to happen! The old adage that ‘you get what you pay for’ is certainly true in commercial real estate. The marketplace, the sellers, and the buyers out there are just too sophisticated to let that happen. There’s always an abundance of buyers out there ready to snap up any hidden gems. The sellers know that, especially those that have a property that has a sound financial and locational footing. Be ready to pay historically low cap rates, but with treasuries yields and CD’s so low what choice does the yield hungry investor really have??
The distressed properties are going to trade at prices reflecting their scavenged tenancies and slow lease up futures. Buying distressed properties sounds great considering how cheap they are compared to replacement costs, but the new owners need to be fully prepared to consider the lengthy restabilization time frame necessary, the on-going operating costs that will need to be paid for, and the considerable work that will facing them ahead. Having a commercial real estate professional on their team to make sure they have an actionable strategy to turn that distressed acquisition into a profitable one is mandatory. Sadly not all distressed properties will turn profitable, regardless of how cheap you can buy them, some commercial development unfortunately just weren’t meant to be.
Is your ‘core asset’ really a core asset? Hidden landmines include: roll-over risk (both in terms of rate as well as renewal), what the lease says they pay isn’t always what they pay, and the true accounts payable picture. Proper underwriting and due diligence is key. Each risk is a blog topic in of itself, so stay tuned.
Still, however, there are interesting deals out there in the marketplace, but most of the truly important deals never hit the open market (the one’s that you say…darn! I wish that I knew that was available!). The hidden market, the insider’s market, is the realm that my real estate practice deals in and what we find most intriguing…finding properties (good properties not perennially distressed properties), that could be available under the right circumstances then matching them up with a compatible investor.
Please contact me and let’s talk about your investment needs.
Dougall McCorkle, MBA
Sales Associate and Commercial Specialist
Premier Commercial, Inc., Licensed Real Estate Brokers
Direct: 239.213.7234
Cell: 239.860.3368
dougall@premiermail.net