Out-of-Favor Assets Offer Higher Yields
- Jul 05, 2017
While many buyers are still looking to invest their capital in core, Class-A urban infill properties, some in the industry are looking to secondary and tertiary markets for considerable returns. Investment strategies in 2017 are increasingly going beyond the safe Class A-downtown combo and focusing on properties in suburban areas, Resource Income and Opportunity REIT Senior Vice President Martin Caverly told CPE. In an exclusive interview, Caverly discusses which property types are most attractive now, the fastest rising markets and his predictions for the future of real estate.
CPE: Which property types do you think are most attractive at this point in the cycle and why?
Martin Caverly: We believe asset classes that are out of favor, or going through a disruption, offer the potential for attractive investment returns over the following years. Currently, certain types of retail offer interesting yields, since all of retail is being thrown out. The reality is only certain parts of the retail sector is impacted by online shopping. Similarly, most investors are avoiding any type of office product that looks or feels like the suburbs. Again, the reality is some locations are really urban-suburban nodes that offer high barriers of entry, but are being priced significantly below replacement costs.
CPE: What strategies should buyers implement if they’re searching for higher yields?
Caverly: Asset classes that are out of favor currently offer higher yields and, if identified properly, not higher risk. Certain retail centers and office buildings offer compelling value for the right investor.
CPE: How do you think rising interest rates will affect real estate financing?
Caverly: We haven’t seen any real impact. In fact, some spreads have actually tightened, which has offset the rise in interest rates in terms of total pricing.
CPE: Will we see increased demand before rates go up again, particularly over the summer?
Caverly: We have seen an uptick in volume of new deals coming to market in the second quarter, relative to what was a very quiet first quarter. I’m not sure if that is tied to interest rate projections or just the market adjusting to the new administration and cautiously evaluating an uptick in overall volatility.
CPE: What should we expect from the industry in the following years?
Caverly: One big trend is the continuing advancement of technology. Real estate holds the most under-tapped opportunity for technological developments, especially in terms of data assimilation and overall market transparency.
CPE: Could you point out a few hot markets worth looking into by investors?
Caverly: Southern California, Seattle, Denver and Dallas markets are worth considering.
Image courtesy of Resource Income and Opportunity REIT