Robert Niedzwiecki, an acquisition officer at JP Morgan Chase in New York City, offers a tip for investing in real estate in 2014. “Go where the puck is going, not where it’s been.”
According to a panel of real estate experts that convened during a commercial real estate finance and investment conference on Tuesday, Oct. 8, the metaphorical puck is heading into value-add properties and/or in secondary markets. Robert Fransen, executive vice president and chief investment officer at Coro Realty Advisers, an Atlanta-based retail and apartment developer, noted that investors are seeing upside in value-add properties.
“Value-add has become much more attractive to capital than just two years ago,” says Fransen. “It's shifting away from the distressed and core ends of the spectrum.”
Fransen and Niedzwiecki’s commentary came during the conference held at the Westin Buckhead Hotel in Atlanta. The law firm of Morris, Manning & Martin LLP and France Media’s InterFace Conference Group jointly produced the daylong event, titled “How Can You Take Advantage of the Recovering Market?” The event attracted hundreds of investors, developers, lenders and financial intermediaries from across the Southeast.
Fransen and Niedzwiecki participated in a panel discussion titled, “The Outlook for Investment in 2014.” Michael Bull, founder of Bull Realty Inc. in Atlanta, moderated the panel discussion. Other panelists included Eric Zimmerman, managing director of Eastdil Secured in Atlanta; Colin Connolly, senior vice president and chief investment officer for Cousins Properties in Atlanta; and Mark Decker, managing director at BMO Capital Markets in Washington, D.C.
Decker referred to some investors as “asset snobs,” meaning the investors are only interested in high-profile assets in gateway submarkets such as Washington, D.C., New York City and San Francisco. According to Fransen, this creates an opportunity in secondary markets across the Southeast, such as Greenville, S.C., Macon, Augusta and Columbus, Ga.
“These are secondary/tertiary markets that we like because there’s less competition. The asset snobs don’t want to go those markets,” said Fransen.
Interest from investors looking to the secondary, non-gateway markets in the Southeast is also a result of the area’s promising fundamentals. Connolly says that’s why Cousins is still interested in pursuing Atlanta-area projects.
“It's really a function of the investors looking at what job growth looks like in the next four or five years and overlaying that with pricing quality assets. When you do that, Atlanta looks incredibly attractive,” said Connolly.
Niedzwiecki is bullish on investing in select suburban office assets — even if institutions aren’t — because of the potential returns on investment. He also believes that investors will eventually come back around to investing in suburban offices.
“You know in five or six years the investors that fled the suburban office market four of five years ago will come back,” said Niedzwiecki.
Investing in suburban properties is logical for a lot of investors. While many young professionals embrace urban living today, many will gradually move to the suburbs as they start families because of the better school systems, cheaper cost of living and benefits of having a yard and more living space, according to Fransen.
“Sure, new graduates and empty-nesters want to live in the city, but the people in between still like the suburbs,” said Fransen. “Just because it's out of favor with the capital markets, I think that's precisely why there's an opportunity to buy some of that stuff.”
— John Nelson