Real Estate Investment Success – What are the factors?
By Brent L. Freeman CCIM, Broker, Bentley Commercial, LLC
A real estate investment trust purchased a 46,000 square foot multi-tenant office building located in the suburbs of Greenville in 1996 for $6,174,625 or $134.23 per square foot. In 2002 the Greenville office market began a decline that peaked in 2005 with a vacancy rate of 24.1%. The REIT sold this office building for $4,020,000 in September of 2005 for a loss of $2,154,625.
An Atlanta based investment group purchased a different suburban office building in July of 2000 for $9,000,000 or $81.82 per square foot. This was a three year old 110,000 square foot office building leased to a national credit tenant for a call/service center. This group sold the office building in October of 2007 for $15,320,000 for a $6,320,000 profit not including cash flow from the property during the holding period.
What are the keys to successful real estate investment? In the first example above, the REIT bought the property at the top of the market cycle. It was forced to lease one half of the building at a time when high vacancies were putting downward pressure on rental rates. The new lease was executed at rates that were $3 to $4 per square foot lower than rental rates just two years earlier. When rental income on investment real estate is reduced there is a corresponding drop in the value of the investment. The REIT also sold the office building at the bottom of the market cycle. Understanding market forces and how they affect value is critical to the real estate investment success.
The Atlanta based investment group that had a profitable real estate investment purchased a single tenant property where the tenant had an excellent credit rating. The tenant had signed a long term lease on the building that was in force during a period when lease rates where declining and they were insulated from the declines in lease rates. They also sold the building at the top of the real estate cycle.
A good real estate broker can guide you through the pitfalls of real estate investment. A good investment real estate broker should possess excellent market knowledge and knowledge of real estate cycles and how they affect value. Look for a broker that has the CCIM designation which requires extensive coursework in real estate investment, production requirements and market analysis.
Brent Freeman holds the CCIM designation and specializes in commercial investment real estate and the office market. He has been surveying the Greenville, SC office market since 1999 and currently publishes the Bentley Commercial Greenville office market report. If you would like a copy of the report please contact him and he will be happy to send you one. Brent would like to talk with you about your investment property or office needs. Whether you lease, own, invest, develop, sell – with Bentley Commercial (an affiliate of CORFAC International), you will find and expert team committed to you and your short and long-term commercial real estate success.
