The volume of capital earmarked for commercial real estate is higher than it has ever been before, according to leading real estate experts. Despite successful fundraising efforts and an influx of capital, some investment managers are feeling pressure to put that capital to work in a highly competitive marketplace.
Having plenty of capital is a good problem to have,” said Jayme Nabors, co-founder of NBI Properties. “But placing capital can be a challenge, so we typically advise our clients to be patient and wait for the right opportunities.”
Experts agree the challenge of placing capital is likely to persist in the near term. The flow of capital into U.S. real estate continues to increase, with total acquisition volume for the 12 months ending June 30, 2015 at $497.4 billion, up 24.6 percent year-over-year, according to a recent Emerging Trends in Real Estate report. The report also predicts that the majority of investors will have capital available for commercial real estate investment in 2016 that is equal to or greater than 2015 levels.
One solution to satisfy that voracious demand is to simply make the pie bigger. To that point, investors are broadening their targets to include more options. The Emerging Trends report anticipates increased capital flows in 2016 to three key areas: 18-hour cities, alternative property types and older assets that could be good fits for renovation, redevelopment or conversion projects.
“Investors realize there is good economic and demographic growth occurring in numerous market, including here on the Emerald Coast,” Nabors said. “Overall there is a healthy supply of high quality real estate assets.”
Investors willing to consider alternative assets on the fringes of commercial real estate, such as cell phone towers, car dealerships or ski resorts, is something that’s occurring more on a case-by-case basis. Generally, investors are sticking with the four main groups of office, industrial, retail and multifamily, where they are more comfortable. However, more investors are willing to take on greater risk within these sectors, such as investing in new development or redevelopment opportunities.