By Jim Hynes, Managing Director
There’s buzz in the real estate investment space as to where to find the best opportunistic returns. This was the topic of conversation when speaking with Lisa Brown, editor for the south and west regions for Globest.com, a few months ago. Traditional, income-producing commercial and multi-family assets have been popular investments recently. But their popularity has also caused new acquisitions to be extremely competitive, and as a result, are not yielding the same returns they once did. Our team focuses on assets that get overlooked by most institutions, which potentially result in outsized returns for local market experts. See excerpts of our conversation below.
GlobeSt.com: After years of solid yields, what are investors saying about returns from income-producing real estate?
Jim Hynes: Rockspring has trusted partners throughout North America and overseas, and we often hear they are concerned their real estate investments – traditionally multifamily, office, retail – are not going to generate returns near expectations going forward. For a variety of reasons, too many dollars are chasing too few deals, resulting in irrationally low cap rates and intense buying competition. These properties are simply too efficient on the buy side for opportunistic returns. When you look on the horizon, there’s downward pressure on future values with the risk of an interest rate hike and potentially higher exit cap rates on sale. These issues are weighing heavily on our partners’ minds.
GlobeSt.com: So what does an investor look to for opportunistic returns?
Hynes: The residential and land sectors are well positioned for outsized returns as there’s limited supply and growing demand in most markets. They are fundamentally under-supplied because of the capital markets. The consumer mortgage industry is still not operating well and banking regulations, including the Dodd-Frank Act, have hampered regional and community banks from lending to land developers and home builders. On the demand side, an improving national job market and population growth in the Sunbelt states, especially Texas where we operate, have kept the demand for housing high.
GlobeSt.com: How will land and residential returns compare to the income-producing real estate?
Hynes: Most of our investment partners are being very cautious on new investments to income-producing assets as they are bracing for a decline in the returns of these properties as the flow of money slows and more normal conditions return. They believe they are ahead of the crowd now by investing in land and residential as these sectors are becoming an attractive alternative and will likely stand alone over the next few years as the most compelling real estate play.
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