COMMERCIAL A Think Real ty Publ icat ion VOLUME 2



by Robert Martinez, Rockstar Capital

M y career in real estate start- ed with a “red pill, blue pill” moment. It felt like a whole new world had been opened up to me, one that had been right under my nose my whole life. I grew up in McAllen, Texas and followed the advice that everyone gets when they’re young: make good grades, go to college, make good grades, and get a good job. I gradu- ated high school, went to Texas A&M, got my engineering degree, and start- ed a career in oil and gas sales and, for a time, surged ahead in my career. I realized sales was one of my partic- ular strengths and began improving those skills every day while I chased the top of my bonus structure. Every time I got close to reaching that high end, my parameters were changed. It happened over and over, with all of my hard work wasted by moving goal posts. I started look- ing for something better and that’s when my “red pill, blue pill” moment struck. I found a real estate podcast and listened to it every chance I got. I took every opportunity to educate myself and peer deeper into a world that I had always assumed was only for the rich, but as it turned out, the door was open for me to join it. I joined a real estate club and started investing even further into myself and my real estate education. Then,


I took the biggest leap of my life, quit my job, and started working in multi- family real estate full-time. I went from a six-figure paying sales job, to sitting in the leasing agent’s chair at that first apartment complex so I could learn the business from the ground floor, up. I knew it was imperative to experience each part of running the business, because it was my goal from the beginning to create a different kind of company from what I had been constrained by. I wanted to create a culture based on heart, care, and a shared drive to be the best of the best. A few years later, in 2011, I went out on my own to start Rockstar Capital. That was the single most impactful decision I have ever made. Ten years later, Rockstar Capital has an industry-leading 19 city, state, and national apartment association awards, 13 cash-out refinances, and I have the distinction of becom- ing history’s only two-time National Apartment Association Independent Owner of the Year. Each of these distinctions is a direct result of the incredible team and culture we have spent the last 10 years cultivating. We have created a company where we value heart over talent and, every day, focus on how to continue better- ing ourselves. The level of creativity, motivation, and drive that permeates our office every day is palpable. We all see each new accomplishment as a new benchmark to surpass the next time. Just recently, we sold one of our first acquisitions as Rockstar Capital to a 9x return to our investors, far surpassing any expectation we had going into that deal. I remember wondering, “How am I going to be able to raise the money to purchase this on my own?” Ten years of honing our team, processes, and culture

later, it has become our greatest success story yet. Our unique position as both the owner and operator of each of our deals means that we get to train and deploy our own teams to each com- munity we add to our portfolio. We’re given an agency over the perfor- mance of each asset that is hard to find in the multifamily industry; when there’s an issue, we can address it immediately. No red tape. Now, we are holding equity raises over 13 TIMES the size of that. We’re buying newer, bigger, and better assets for our investors and peo- ple are starting to notice. Your track record is one of your greatest tools and we guard ours with our lives. In 10 years, Rockstar Capital has never lost investor money and never performed a call for cash. Those are poison pills that kill companies. Instead, we project conservatively and work to outperform what our investors expect. Great deals aren’t found, they are made. Our underwriting teams are constantly looking into new opportu- nities for our investors, and we are extremely selective in the deals we

actually present for investment. To give that some context, since Janu- ary 1, 2021, we have already under- written over $2.5 Billion in potential assets, all a part of searching for the best deal for our investors. When we do find a winner, we formulate a spe - cific plan all the way to disposition. That means we know who our team will be onsite, what upgrades and improvements we will be making, and even what our exit plans will be. It is hard for me to imagine my life without Rockstar Capital and this incredible team I’ve surrounded myself with. Multifamily real estate changed my life’s trajectory and cre- ated generational wealth that I will be able to pass on to my boys. I have already far surpassed any person- al expectations of myself I had, and now, I’m working towards the legacy I can leave. There’s no limit to what I can build with Rockstar Capital and I have the team around me that makes me never want to do that alone. We are out to change the lives of our investors, team, and residents, one deal at a time. To learn more about Rockstar, please visit



"We’ve been EXTREMELY BLESSED by this group in so many


We have had the opportunity to invest in several deals,

both as limited partners and helping with several aspects of

the GP. We would not have been able to grow our business this

quickly without the help of Mark & Tamiel AND the other

members of this group!"

“Just 2 weeks after my first

FIRE Summit,

I received a cal l from

someone whom I met at the conference, inviting me to be part

of a deal that he and another

Think Multifamily

member had

under contract. He wanted to give me the opportunity to learn

first-hand how they would carry out a deal from start to finish.

I was blown away...

I felt like I had just won the lottery! ”

“Think Multifamily delivers what

they promise.

I went from

owning single family homes to closing our first 114 unit

apartment complex within 5 months.

Phenomenal Experience!"

4 : : COMMERC IAL REV I EW Is Multifamily Investing Right For You?

Mark Kenney Co-Founder, Think Multifamily

There’s one inevitable realization all green apartment investors will face early on. I’m talking about the realization that one cannot predict the future and what an unfortunate handicap that is in the world of Multifamily Investing...

No small properties. In my experience, the smaller properties have been the biggest time sucks and distractions from my bigger goals. The effort to purchase as small property is the same as purchasing a large property (with the exception of raising money for larger deals could take longer). Render caution when considering properties in high crime areas. There’s much stress associated with these properties, not to mention, lenders don’t like high crime areas, which limits your financing options.

What location(s) do you want to invest in? How many units should a property have for it to make your list? Which property class(es) will you consider? At what purchase price(s) should a property be to attract your attention? HOW TO DEFINE YOUR CRITERIA IN REAL ESTATE INVESTING #1 Start Defining your Criteria by Addressing the Obvious: should have been my very first priority. But, I feared missing out on that one awesome deal. So, I spent countless hours dissecting every prospective deal I came across, stuck in Analysis Paralysis, refusing to act. Take it from me, skipping the step of “Defining Your Criteria is counterproductive to every goal you have when it comes to real estate investing.

It can be a career debilitating reality. All of a sudden, you’re exposed to a plethora of properties, none of which come with a flashing I’M THE RIGHT ONE sign. While I’m light-heartedly investors before you have fallen prey to getting stuck before they start or, even worse, starting off with a bad deal. You can combat this epidemic by being prepared and Defining your Criteria. serving up this concept, PAY ATTENTION … because many In Multifamily Investing, “Defining Your Criteria” is the first essential step to consider before putting your money anywhere. To make the best and most profitable investment choices, you need to specify, outline and, I would suggest, write down, a game plan to guide you through the storm of properties, information, details, and deals. Defining your criteria will save time, money, frustration, and as a new investor, will save you from the dreaded Analysis Paralysis – a condition described as a plaguing fear of failure, which prevents one from making that first move towards financial freedom.

Strategy: #3

Decide on an Investment

Did they start off buying rehab deals and then move to more stabilized assets? Did they begin investing in single family and progress to multifamily? Did they start off holding deals for only a couple years and then If you’re unclear on which strategy will serve you best, I recommend observing idol-worthy investors. Take note of what they do and WHY they do it.

Breakers: #2

Pepper in your Deal-

I wish I had been more clear about what I was looking for as a young and hungry investor.

move to long-term holds? Do they typically sell or refinance a property?

To help you consider YOUR deal- breakers, I’ll share some of mine:

Never pay cash for a deal. It could take forever to get your money out again when you could be investing it. Be extremely selective on buying a property that has a lot of down units. Everything involved in flipping such units takes longer and costs more than anticipated.

Answers to these questions will help you determine your investment strategy and further define your criteria. It’s a small task that will set you up for success. Good luck and remember, Think Multifamily is behind you!

All of that energy could have been directed at more productive and profitable tasks instead of analyzing deal, after deal, after deal. Knowing now that only a small percentage of available deals are even worth my consideration, defining my criteria

COMMERC IAL REV I EW : : 5 Mark Kenney Co-Founder, Think Multifamily

The $5 Billion Plan for Your Apartment Syndication Business


by Joe Fairless

I n late 2020, I achieved one of my original long-term apartment syndication goals: $1 billion under management. A large por- tion of that $1 billion (a little under $300,000,000) was added in 2020. At the same time, the podcast I creat- ed, Best Real Estate Investing Advice Ever, and the Best Ever brand in general, continues to thrive. Both accomplishments were truly a team effort, and they required con- stantly evolving and employing new ideas to stay at the top of our game. Here are the five ideas we’ve imple - mented in our business in the past 18 months to continue to grow our syndication business and the Best Ever brand. 1  PROTECT YOURSELF FROM THE BIGGEST LIABILITY YOU’RE

(emails, investment summaries, PPM, operating agreement, sub- scription agreement, etc.) and entities. They will also ask their attorneys questions as they arise. The liability is due to the questions that aren’t asked, which puts them at risk. OUR SOLUTION: Hire an in-house compliance person. This is a legal expert who knows what questions to ask to cover your blindside. 2  BRING THE BEST OUT OF YOUR TEAM. When you are starting a new compa- ny, it is usually just you, your busi- ness partner, and maybe a few other people, like virtual or executive assistants. Job duties aren’t very defined since everyone is wearing a lot of hats. Eventually, as you begin to grow, you bring on more team mem- bers and roles and responsibilities become more defined. When it is just you and your busi- ness partner, compensation is usu-

ally tied directly to the number and size of deals completed. But once you bring on salaried employees, how each team member’s perfor- mance impacts the success of the business begins to blur. Also, their compensation isn’t directly tied to the number or size of deals. As a result, what motivates you and your business partner/s isn’t the same thing that motivates your salaried employees (i.e., the number and size of deals). OUR SOLUTION: Create a single key performance indicator (KPI) for each team member. That way, they know exactly what is expected of them and are motivated to exceed that KPI to receive a bonus. 3  ENJOY BETTER DEAL FLOW, DELIVER BETTER AND MORE STABLE RETURNS, AND CREATE MORE SANITY. Most, if not all, syndicators start off raising money for individual deals. They usually have a list of passive investors who have previously invest-


For 99 percent of syndicators, the biggest liability is compliance. Sure, they work with attorneys to cre- ate their investment documents


as a syndicator, you are likely the main (or only) source of content. You are writing, editing, and posting the blogs. You are planning and hosting the meetups and conferences. You are scheduling guests, recording, editing, and posting the podcasts. You are the owner of one or more social media accounts. However, as your brand begins to grow, it can become a full-time endeavor. Even- tually, you will get to the point where the time spent on maintaining and growing your brand is taking away from your focus on the real estate business. Either the brand suffers, or the business suffers. OUR SOLUTION: Transition your thought leadership platform to other people once it matures. This is more than just outsourcing editing. This means having people who create the content, as well as an editorial director to manage all the moving pieces. They will focus on growing your brand, so you can focus on growing your real estate investing business. 5  OVERCOME THE SUCCESS PARADOX. Feedback from others is one of the best ways to improve and become a better real estate entrepreneur. However, the more successful you become in business, the less likely you will receive constructive criti- cism from your team members. OUR SOLUTION: Ask three people in your circle to provide you with honest feedback. Also, identify an event that occurred at least a month ago that didn’t go according to plan and think about how you were responsible for it taking place. Lastly, create a Google Form and ask your team members to provide you with anonymous feedback.

ed in a deal or expressed interest in investing. Once a deal is identified, the opportunity is presented to this list. While the syndicators secure commitments, they work with their attorneys to create the deal docu- ments and form the entities. After the deal is purchased, the search for a new deal begins. There are a few drawbacks when it comes to scaling a business by raising money for one deal at a time. First, it limits your deal flow, because you are usually hyper-fo- cused on a unique asset class in a single market. Second, it is riskier for passive investors, because their entire investment is used to fund a single opportunity. Lastly, there is more pressure on you, because of the race to raise all the money between contract and close. OUR SOLUTION: Create a fund instead of doing single asset purchases. Creating a fund will increase your deal flow because you can be more flexible with the types of assets you target. It generates better and less risky returns because funds are spread across multiple deals and markets and less capital sits idle. And it creates more sanity for you because the money is committed before a deal is identified. 4  GET BETTER RESULTS ON YOUR THOUGHT LEADERSHIP PLATFORM AND IN YOUR COMMERCIAL REAL ESTATE BUSINESS. Something we focus on a lot at the Best Ever brand is the importance of a thought leadership platform. It is one of the best ways to build a repu- tation as an expert in your industry, which increases your credibility and ability to attract passive investors. When you are first starting out


NO. 1 Reduce your liability by hiring an in-house compliance person. NO. 2 Set clear expectations and provide motivation for your team members with individualized KPIs.

NO. 3 Create a fund.

NO. 4 Focus on your investing business and hire others to maintain and grow your thought leadership platform. NO. 5 Find three trusted colleagues to provide you feedback, analyze past events, and ask for anonymous feedback from team members. If you want to create a massive real estate investing company, you will need to implement these ideas in your business. Start with the idea that will have the biggest impact on your busi- ness and then go from there. •

Joe Fairless is the Co-founder of Ashcroft Capital which has over $1B in assets under management. Joe created the podcast, Best Real Estate

Investing Advice Ever Show, which is the longest- running daily real estate podcast in the world and generates over 500,000 monthly downloads. He is also a proud Member of the Texas Tech Alumni Advisor Board for the College of Media and Communication, as well as being recognized as Outstanding Alumni at Texas Tech University, where he is a former Adjunct Professor. He is currently a Junior Achievement Board Member and Volunteer for the Cincinnati chapter and has been recognized by the Junior Achievement’s Free Enterprise Society. Joe volunteers at Crossroads Hospice and was recognized as Multifamily Investor of the Year by Think Realty Magazine.


Self Storage Real Estate: Risk vs. Reward


by Ted Greene and Scott Lewis

W ayne Gretsky, the famous ice hockey player once said, “I skate to where the puck is going to be, not where it has been.” Investors, have a lot on our minds; where will interest rates go, will our tenants pay, will the economy hold up, etc. While there are many cross currents to consider with any given decision, a significant challenge for investors is making correct assumptions about the impact of changing variables and determining the proper course of action based

on the perceived impact of the sum of those variables. When investing, making decisions based on recent experiences (think 5-10 years), and extrapolating those experiences into the future antici- pating the environment will remain the same, or at least rhyme, is a classic and sometimes catastrophic mistake. Let’s examine several scenari- os that could influence real-estate going forward, and specifically the value of syndicated Self-Storage

assets. You be the judge of their indi- vidual and collective impact. First scenario: interest rates will rise. If there was one aspect of the economy that characterized the 1970s, it was inflation. Persistent for most of the decade, it choked off much of the growth in our nation’s businesses. Paul Volker, then the chairman of the Federal Reserve, had to eventually take decisive action and raise the Fed Funds rate to near 20 percent to “slay the inflationary dragon.” Money tightened, interest


“The reward you seek should be totally commensurate with the risk you are willing to take, and to reduce your risk you should diversify.”

rates spiked, and homeowners with adjustable-rate mortgages (ARMs) were jammed as their mortgage payments shot higher. The recession began as unemployment peaked above 10 percent due to restrictive Fed policy. Thankfully, it worked. From 1980-1983, inflation dropped from above 13 percent to under four. It seems plausible, we are entering a secular trend of rising interest rates and governmental protectionism. Whatever your investment philoso- phy, it should accommodate a much higher cost of capital. As an inves- tor looking at various syndications, make sure the sponsor is running a multi – scenario analysis and ask to see the results of those analyses. Second scenario: 401(k) plans become fascinated with Real-Estate that can increase its Net Oper- ating Income. Last summer the Department of Labor (DOL) made a change to how retirement plan administrators (think 401(k) and 403(b) plans) can invest the assets they manage in their target-date retirement funds. To affirm this, take a moment to do an internet search for “US Department of Labor Information Letter On Private Equi- ty Investments”. Retirement plan administrators are now permitted to invest a reasonable amount of the assets in their target-date funds in private investments such as syn- dicated Self-Storage. These are fantastic options due to the cumu- lative preferred returns, as well as the increase in the assets value due to the building of additional net rentable square feet at the property thereby increasing the Net Operat- ing Income. NOI / Cap Rate = the increase of market value. Frequent- ly, when syndicating small mar- ket (below 50mm purchase price)

self-storage the Value-Add deals could have equity multiples is north of 1.75 x in 4-5 years. Investors with 401k plans that are interested in real estate investments should ask their advisors about options they may have. Investors in traditional 401ks that don’t offer the opportuni- ty to invest in self-storage syndica- tions could opt to move their funds to a self-directed IRA with addition- al control by the individual investor. Third scenario: tax rates on stock dividends go up causing common stockholders to look elsewhere for yield. This scenario is subjective based on a specific household’s income and filing status, but it is plausible that legislation is rolled out which will bring a higher tax rate on dividends paid by common stocks. An advantage that all real estate investments can provide is depreciation and particularly self-storage is well placed to offer significant depreciation benefits. In addition, there is the bonus depre- ciation received by LP members in a syndicated self-storage asset may neutralizes the passive income earned by the investment. Overall, comparing apples to apples this may cause syndicated self-storage to become incrementally more attrac- tive to investors. That is not to say it is the end all be all answer, as there are a variety of issues to weigh such as liquidity, position sizing, credit quality etc. Investors, inquiry with your sponsors about whether they

do cost segmentations. If they don’t, you’re missing out. As investors weigh risk and reward, remember a few core ten- ants of investing. The reward you seek should be totally commensu- rate with the risk you are willing to take, and to reduce your risk you should diversify. Secondly, don’t assume the environment that you are in will continue forever. Trends change, interest rate environments change and everything cycles. Best to you as you evaluate the opportuni- ties that lie ahead. Thirdly, always do your due diligence on both the deal and the sponsor. •

Ted Greene is a third-generation Seattleite who married his high school sweetheart. Ted and Melissa have two children attending the same High School

where they first met. After graduating from Seattle Pacific University with a BA in Finance Ted spent 24 years in the financial services industry as an investment advisor and Fiduciary.

Scott Lewis is the co-founder and Chief Executive Officer of Spartan Investment Group, LLC (SIG). To date SIG operates over 5500 storage units, 200 RV pads,

has completed $11M in development projects, has $115M more underway, and has raised over $42M in private equity. As the CEO, Scott is responsible for the strategic direction of the company and ensuring it aligns with SIG’s mission to Improve Lives Through Real Estate. In addition to Spartan, Scott is also in the US Army Reserves and a combat Vet. Scott graduated from Michigan State University with degrees in Chemistry and Marketing, from Catholic University with a MS in Management, and from Georgetown University with a Certificate in Project Management.


Industrial Real Estate: The Bright Point of CRE


by Patrick McGregor

T he pandemic put a massive damper on many industries — in particular, travel and tourism, hospitality and entertainment, and commercial real estate. As other asset classes like office and retail struggled with stay-at-home orders and virtually no traffic, industrial real estate likely advanced even further into the future than it otherwise would have during normal times. That’s because e-commerce has been expanding for a decade and is

footage set to hit the U.S. market this year will be the highest in the last five years. Much of the expan - sion is focused on southern markets with a few regional hubs seeing their share, as well. INDUSTRIAL PROPERTIES OFFER INVESTORS MORE STABILITY IN UNSTABLE ENVIRONMENTS Industrial real estate incorporates many different types of industries, businesses and uses. During the

now being powered by next- or even same-day delivery and curbside pick-up — two features that are very attractive to people who are stuck in their houses. And, while construction in many sectors has been slowed or halted altogether, construction of industrial buildings is set to be strong this year. In fact, using data from their sister division CommercialEdge, an analy- sis by CommercialSearch indicates that the amount of industrial square


pandemic, many of those industries dealt with challenges that had not been seen before — such as man- ufacturing facilities operating with fewer personnel on the floor due to social distancing protocols. However, many of these busi- nesses were able to maintain their operations because the nature of the job was considered essential. In fact, some businesses even thrived. Con- sequently, with more people staying home and ordering online, online retailers, order fulfillment centers, and shipping and logistics compa- nies were not only busy, but they were also expanding. Notably, shipping and receiving facilities, fulfilment centers and trucking companies are more social- ly distanced work environments that most others — and they’re also essential. Now, with the acceleration of e-commerce, it’s more important than ever to have enough facilities to support all the goods that are being ordered and delivered.

Accordingly, eight of the 10 largest industrial buildings set for comple- tion this year will either be occupied or owned outright by Amazon. Of these, just four properties construct- ed by Amazon will stretch across 14.8 million square feet, with anoth- er 13.5 million square feet set to be leased from other developers. Furthermore, all the top 10 largest industrial properties are more than 2.5 million square feet, the largest reaching 4 million square feet: Aus- tin’s new Giga Texas Tesla manu- facturing facility and Project Rodeo, Amazon’s new facility in Colorado Springs. In contrast, last year, the largest industrial property complet- ed was 2.8 million square feet. GOOD NEWS FOR INCREASED DEMAND: INDUSTRIAL BUILDINGS CAN BE BUILT QUICKLY When it comes to the construction of commercial buildings, industrial buildings like warehouses are the easiest and quickest to build, with

the average warehouse taking less than three months to complete. That’s good news when, almost over- night, e-commerce solutions became an essential part of everyday life. Still, part of the fast growth cycle is that demand often exceeds supply— and industrial real estate is no differ- ent. For example, in some markets, it’s getting difficult for logistics and trucking companies to find properties with the necessary attributes—like high-velocity cross docks and ade- quate corresponding trailer storage capacity—that are still near main travel arteries. And, with shrinking stock, many of the smaller, would-be buyers are getting priced out. However, flex space could be an alternative to office space, as well. Normally much smaller and more easily retrofitted for different uses, flex space also has benefits typical of industrial space, as well, such as loading docks, open spaces and good locations.



markets of Dallas-Fort Worth (DFW), Houston and Austin are all in the top 10, with Phoenix; Inland Empire, Calif.; and Atlanta joining them. INDUSTRIAL IS BIG IN TEXAS — AND GROWING Specifically, the market that is adding the most industrial square footage is DFW — and by quite a large margin: The metroplex will add 28 million square feet of industrial space across nearly 80 properties. In fact, this one market alone will account for eight percent of all the industrial space added this year in the entire country. Meanwhile, Austin is set to add 10.4 million square feet of industrial

space, which is more than 500 per- cent more space than it added last year. However, Elon Musk and his 4-million-square-foot Giga Factory and Seefried’s 3.8-million-square- foot Amazon distribution center are adding more than half of the total Austin square footage. And, although Houston is adding 7 million square feet less than it did last year, it’s still good enough to make the top 10. Despite the decline in the oil and gas industry (which hit the city hard), the city is adding 10.3 million square feet of industri- al space this year. Even so, Houston does still seem to be bleeding mar- ket share to other Texas markets, like DFW and Austin.

So, with all this demand, will the supply that’s coming online this year be enough? If not, it won’t be for lack of trying. This year, 342 mil- lion square feet of industrial space is set to be completed — a 24 per- cent increase over last year and the most in the last five years. All that space will be spread across more than 1,000 properties that would occupy a space the size of Chicago’s O’Hare Airport. And, while most of this inventory is spread around the country, the south and western markets seem to be getting the largest pieces of the pie. Specifically, the top three Texas


INLAND EMPIRE STAYS STRONG As one of the most important

ic, with consistent cash flow and reliable investment growth. In the meantime, we’re also likely to see demand increase for data centers, which also typically occupy ware- house-style buildings.

tion center in Phoenix — but that’s not the only one. The city will also see another 18.4 million square feet of industrial space enter the mar- ket by the end of the year. The I-10 corridor coming directly from Inland Empire — in addition to Sky Harbor International Airport — makes the Valley of the Sun a natural logistics hub. In fact, much of the industrial development is located just south of I-10, east of downtown Phoenix. Industrial real estate seems to prove time and again to be a some- what more stable investment during economic uncertainty. That has also been the case during the pandem-

industrial markets in the country, Inland Empire is almost always near the top in industrial rankings. Basi- cally, it’s a natural staging area for all goods coming in from the Port of Long Beach, Los Angeles Interna- tional Airport and Ontario Interna- tional Airport. PHOENIX: THE VALLEY OF THE SUN STILL SHINES Amazon is also adding another multi-million-square-foot distribu-

Patrick McGregor is a senior writer at CommercialCafe, covering the real estate industry and overall economic trends in the United States. He also

holds an MBA from Thunderbird School of Global Management. Before joining CommercialCafe, Patrick was a commercial real estate analyst at Yardi Matrix for five years


Expectations of Strong Post-COVID Recovery Bolster Competition for Commercial Real Estate Assets

by John Chang


COMPETITIVE BIDDING SPURS CAP RATE COMPRESSION. Private investors have been a driving force behind commercial property sales since the onset of the health cri- sis, representing over half of commer- cial real estate sales dollar volume during the periods of peak uncer- tainty. Buyers have most aggressively focused on assets that weathered the pandemic best, including industrial, multifamily and self-storage prop- erties. Investors have also targeted property types expected to make a quick post-crisis recovery, such as hotels as well as certain types of retail and seniors housing. While some discounting has occurred in unique situations, valuations of most asset types have largely held as strong buyer interest has aligned with limited for-sale inventory. INDUSTRIAL INVESTORS ANTICIPATE ROBUST OUTLOOK. The alignment of steady e-com- merce growth, increased warehous-

ing of safety stock and the prospects of reviving imports and exports have amplified industrial investor opti - mism. Although cap rates range dramatically depending on the mar- ket, property vintage and numerous other factors, they have been favored with downward pressure predating the pandemic. Over the last year, this trend has gained momentum, lifting prices and reducing yields. Infill locations remain a top target for private investors while institution- al funds have favored larger assets with quality leases in place in port and intermodal hub metros. MULTIFAMILY PRICING SURPASSES PRE-PANDEMIC LEVELS. In numerous markets, well-per- forming apartment properties have achieved pricing above pre-pandem- ic levels. Though some submarkets in some metros continue to contend with weakened fundamentals that are suppressing values, optimistic investors in many cases are under- writing a strong recovery in 2021.

Multiple factors point to an econ- omy that is firmly in recovery as a critical mass of the U.S. popula- tion becomes vaccinated. Stimulus checks have bolstered personal savings, consumption has surged to record levels and reviving air travel suggests that both business and leisure travelers are back on the move. Many expect these economic tailwinds to boost commercial real estate fundamentals, inciting recov- ery speculation and driving buy- er activity. By the same token, the recovery has thus far been uneven, with some cities, states and property types jumping ahead of others, gen- erating a broad range of valuation trends. Many investors remain in a holding pattern, awaiting additional clarity before they sell, restraining the flow of marketable inventory. This has exacerbated the expecta- tion gap between buyers and sellers in many markets.


with a positive growth outlook. While yields have been contract- ing, the margin relative to alterna- tive, low-risk investment vehicles remains wide as interest rates are still historically low. As the econo- my reopens, commercial real estate demand profiles are strengthening, and that anticipated momentum is carrying commercial real estate prices upward in most markets and property types.

Large primary markets have been set back the most with a 3.6 percent rent decline over last year, but rates in secondary and tertiary markets grew by 1.6 percent. The perfor- mance differential reflects migration trends driven both by the pandemic as well as the aging of the millennial generation. Half of millennials are 30 years of age or older, common family formation years, spurring demand for larger, more affordable living spaces outside the urban core. Workforce housing will likely enjoy the most robust housing demand, but as workplaces reopen Class A properties will also see a demand recovery. The collage of positive fore- casts lifted investor optimism, spur- ring acquisition demand, but current trends have also persuaded some prospective sellers to hold onto assets longer. Strong buyer inter- est has aligned with hesitant seller activity to bolster price appreciation and cap rate compression, pushing the national average cap rate below the low-5 percent range. RETAIL SECTOR FACES WIDE PRICING VARIANCE. Investor demand for single-tenant properties that sustained perfor- mance through the pandemic such as discount stores, drugstores and quick service drive-thru restaurants remains high. This is preserving pricing momentum and cap rate compression. Pricing of course varies depending on the length of lease, the location of the property, and numerous other factors, but the overall average cap rate has dipped to the low-6 percent range. Gro- cery-anchored shopping centers in growing submarkets are also being pursued by investors, driving cap rates for these assets to the 6 per- cent to 8 percent range depending

on tenant profile, payment history and location. Buyers remain cautious regarding multi- and single-tenant spaces dependent on weekday foot traffic or close social interactions. A revival is beginning to mount for these types of properties, however, as states reopen their economies. For underperforming properties, a bid-ask imbalance is inhibiting sales. UNCERTAINTY RESTRAINS OFFICE INVESTOR ACTIVITY. Office buildings continue to face an unclear demand outlook even as more companies take steps to curb remote work. Assets located in walkable first-tier suburban set - tings with a strong lease profile have attracted the most investor attention, and pricing in growth markets can reach above pre-pandemic levels. Urban office towers still face sev - eral hurdles in bringing all workers back in, such as trepidation toward public transit or crowded elevators. Because of these impediments, cap rates across the office sector have remained stable on average, in the low-7 percent range. Medical offices, in contrast, have more clarity on long-term demand, sustaining inves- tor interest. Cap rates for recent trades of these assets have nudged lower, to just below their historical average of 7 percent. COMMERCIAL REAL ESTATE CAP RATES OFFER COMPELLING MARGINS. Many investors anticipated the health crisis to precede a wave of price discounting, but that out- come has become less common as the country’s health situation has improved. The limited number of marketed assets has instead sup- ported price appreciation and cap rate compression in regions favored

John Chang serves as the National Director of Research Services for Marcus

& Millichap. He is responsible for the production of the firm’s vast array of commercial real estate research publications, tools and services. Under his leadership, Marcus & Millichap has become a leading source of market analysis, insight and forecasting, and the firm’s research is regularly quoted throughout the industry and in mainstream business media. John oversees a team of dedicated real estate research professionals who produce the firm’s more than 1,000 annual market research publications and conference presentations. These detailed reports, analyses and presentations integrate economic and financial market trends with insights on all major commercial property types including: Hotels, Industrial, Manufactured Housing, Multifamily, Office, Medical Office, Retail Multi- Tenant, Retail Single-Tenant, Self-Storage and Seniors Housing. John is a seasoned industry analyst who has been quoted in numerous publications and is an active member of the NMHC Research Foundation Advisory Committee, the ICSC North American Research Task Force and the NAIOP Research Foundation. He regularly presents at a wide range of conferences and events hosted by industry- leading organizations such as the NMHC, NAIOP, ULI, CCIM, ICSC, SSA and numerous others. John joined Marcus & Millichap in April 1997 as a Research Manager in the Seattle office. After holding executive marketing and e-business positions with premier residential real estate firms in the Pacific Northwest, he rejoined Marcus & Millichap in November 2007 as the head of its Research Services division. John was elected as Vice President in 2010, advanced to First Vice President in 2013 and promoted to Senior Vice President in 2018.



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