Why Speaking With The Property Manager Should Be Part Of Any Investor’s Due Diligence
The current economic climate can be difficult for investors to navigate. With soaring inflation, interest rates rising and the stock market changing day to day, many investors are wondering where they can find a stable place to put their money.
For some, the smart choice may be to invest in commercial real estate, historically a hedge against inflation. But while it seems like CRE is a smart investment, choosing which deals to back can be a complex, overwhelming decision for both new and seasoned investors.
Amy Hall, chief operating officer of Caton Commercial Real Estate Group, said CRE investors can make better-informed decisions by consulting with a property manager who has the experience and real estate expertise to guide them. Bisnow spoke with Hall and Barbara Montes, managing director of Caton Property Management, to learn more about CRE investing in 2022 and how property managers can help.
Bisnow: Why should an investor consult with a property manager?
Hall: Many investors do not have CRE property ownership experience and would have no way of knowing the different deferred maintenance items that may exist on a property, or the repairs and improvements needed that could cost them significant dollars post-purchase.
These are things a property manager can point out and evaluate. A property manager can also evaluate the potential value of an asset based on its position in the marketplace, the health of its leases and its future marketability.
Montes: A seasoned property manager can also assist the investor in requesting a variety of important documents that include crucial information for managing the property after the sale. Additionally, during the due diligence period, a property manager can assist the investor in reviewing leases to identify any questionable items for further clarification.
Bisnow: What sort of expertise can a property manager offer?
Hall: Commercial property managers are experts in the physical building and grounds, while other CRE professionals, such as brokers, often are not.
Montes: Managers also have extensive relationships with contractors that can provide quotes to repair any deficiencies identified during the due diligence period. This is valuable information for the investor to have in case the price of the property needs to be renegotiated.
Bisnow: What is the outlook for multifamily in 2022?
Hall: Market-rate has been a very strong sector for several years but there are some headwinds that may disrupt it, such as the rising cost of construction and the fact that rental rates are not keeping pace with those costs, and of course, the impending interest rate increases. As the cost of both capital and construction continues to rise, I believe you may see fewer projects getting off the ground.
There is a significant demand for housing that is affordable and, we as an industry, have to figure out how to bridge that gap. Developers who are focused in the co/social living space, micro-units and those who are converting hotel assets into workforce housing are working to meet that challenge.
The stigma around "affordable" housing often must be overcome and a good property manager can make all of the difference in the public’s perception of these crucial assets. A strong management partner can provide the support needed to implement and provide quality, amenity-forward housing that is affordable for underserved communities, young adults, workforce individuals and families, and seniors.
Montes: 2021 was a very good year for some landlords of Class-A multifamily properties in highly desired markets. However, this might not be sustained during the latter part of 2022 as inflation keeps rising and renters will not be able to afford steep rent increases.
Affordable housing is in very high demand. Investors should seek the advice of a local property manager who is very well versed in local housing requirements and possible upcoming legal changes.
Bisnow: What impact did the pandemic have on investments in the multifamily and other sectors?
Hall: Urban multifamily properties were impacted by several factors including the eviction moratoriums, which made it impossible for landlords to evict tenants who were not paying. Secondly, there was a period of decline in demand. Secondary and tertiary markets across the country, however, saw an influx of demand. Today, we are seeing a rebound in multifamily demand in urban cores and some very strong transactions in the market.
Multitenant retail and urban office properties were also significantly impacted by the pandemic, but more negatively due to the shutdown of the economy and continued social distancing restrictions.
The office sector continues to face a wide-scale rightsizing, similar to what retail has experienced for nearly the past decade. Landlords are going to be faced with a continued environment of reworking leases, subletting and having to find replacements for tenants that may not live out their lease terms or do not renew at the end of those terms. The expertise of a trusted property management adviser can make the difference between a property surviving, or not, and continuing to thrive and appreciate.
Montes: Being that most of the multifamily sector fared better than retail and office during the pandemic, investors who previously never considered investing in multifamily assets are now willing to consider acquisitions in this sector. The management of multifamily assets is very different from any other type of asset and it is crucial for an investor to align themselves with an experienced property management adviser to assist in properly putting together a pro forma for the asset during due diligence.
This article was produced in collaboration between Studio B and Caton Commercial. Bisnow news staff was not involved in the production of this content.
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