Whats most important to a real estate investor these days?
Im astounded by the volume of investor activity these days! Recently, we discussed two types of investors  those who use their own money to make buys and those who dont. We refer to the former as private and the latter as institutional. As youll recall, private investors generally will secure debt as a supplement to their down payment whereby an institutional group will have ready pools of equity ready to deploy. We launched an offering last week. So far, weve had over 76 inquiries and two offers. We expect the deal to trade at a record price. Heres another example: A Class A building just leased  before construction was finished. Completely unsolicited, an investor offered to buy it  subject to the new lease  at a return and price per foot that wouldve shattered any record. Our client said, no thanks! Its just too difficult to find land and secure city approval to build. Their plan is to hold for the long term. Both of the above are great examples of whats seen as most important to investors these days. Indulge me as I discuss of few of my observations. Generally, motivation starts with money. Specifically, the source of those dollars. With our new offering, the owner of the real estate bought the building to house his operation. He coupled earned funds with a 90% loan from the Small Business Administration to close the deal in 2013. Flash forward. His business model changed in 2018. No longer needed was the warehouse. We found him a tenant to replace his occupancy. He then morphed into a private investor whereas before he was an owner-occupant. After all, the tenant is providing a nice check each month. Two reasons. A move out of state by the owner to a tax friendly state means hell escape California state taxes if he sells. Plus, the market is hot! Taking the boot and buying elsewhere will yield more. Net cash flow  what remains after he pays the bank and income taxes. Now, in the case of the new Class A lease and unsolicited offer, we have a different set of circumstances. Lets start again with the money. Before 2019, our client teamed with a Canadian pension provider. Structured was a fund with a clear objective: acquire industrial deals in infill markets (those that are largely developed). Existing structures and sites that require repurpose are considered. Dollars invested will provide a return for pension recipients for years to come. Therefore, if a new project is developed and sold, a bigger problem emerges  where to invest the profits  because there is a shortage of investment-grade real estate. A long sustainable income stream. Rarely. Those who tap Wall Street for investment equity  such as real estate investment trusts  are governed as to how much theyre allowed to dispose of annually. Others who buy on behalf of pension funds  such as CalSters and CalPERS  must keep a percentage of the pool in asset classes such as commercial real estate. Cash returns in a bank or T-bills are puny. Typically, when a business plan is executed  dollars deployed  there is a sunset on the arrangement of five, 10, 15 years. Youll therefore see properties hit the market whose underlying funds have matured. If their timing is now  what a bonanza!