3 Aces for CRE Investments

There are primarily three clinchers in any commercial real estate investment opportunity. The tenant profile, the location, and the lock-in & lease period are things you should be looking out for.

Tenant Profile –

Coming to the tenant, most multinational companies or manufacturing organizations are unlikely to skip out on commercial properties they have been operating out of. The case holds especially true if the company has been having a stable turnover and consistent operations. Look for assets occupied by larger and relatively stable companies and you should be good to go.

Location –

The location of any asset is the factor that is perhaps the least transient one. Based on where an asset is located, and the connectivity of the place to city centers or other important business spots, the value of the property can appreciate in a substantial manner. It is not like only urban and suburban areas will be ideal. For warehouses and production facilities, commercial buildings can be selected in remote areas with good connectivity. For office spaces though, better look at locations where the vacancy rate is less than 5%. That makes it less probable for tenants to go space hunting as often.

Lock-in & Lease Period –

The lock-in and lease period are the cement to your investment portfolio. A lock-in period of less than 2 years is not a good thing from an investment perspective. This kind of window allows tenants to shop for more economical assets and be less concerned about building a business base. The lock-in period forms part of the lease agreement. While anything under 2 years is a problem, shooting too high and getting a lock-in period of 4 years or more has its downsides as well. That means even if the market turns favorable, restructuring of rent becomes troublesome. While lease periods can easily go up to 10 years or more. If the lease is on a custom outfitted space, you can rest assured that the tenants are not moving from there for quite a while.

There are many other finer details that you can look at when deciding to invest in commercial real estate, but considering the current situation at hand, paying attention to these three can save you from making any kind of rash decision.

‍