By: Andrew Freeman & Dan Cohen
While many of us would like to acquire commercial real estate in the Boulder area, most of us don’t have the extra million dollars sitting in our savings account to use as a down payment and thus cannot consider acquiring commercial real estate in Boulder as a solid investment alternative to the stock market, mutual funds and low paying CD’s and savings account.
However, if you have lived in the Boulder area for a while, it’s a safe bet that you already understand the strengths and weakness of the Boulder area market. This local knowledge is an important ingredient in analyzing commercial real estate. Key factors such as government policies, open space, lifestyle amenities, the highly educated work force, CU and CO-Labs are all key ingredients in how this market ticks.
Many local investors are acquiring small apartment buildings and houses based on the low barriers to entry and familiarity with this sector. While these types of investments can be profitable, they generally take a significant amount of time to maintain and leases are generally short term, which means more exposure to the short term ups and downs of the market. Another small equity investment option is purchasing shares in a public REIT or (Real Estate Investment Trust). Prior to 1960, only wealthy individuals and corporations had the financial resources necessary to invest in significant real estate projects such as shopping malls, corporate parks and health care facilities. In response, Congress passed the Real Estate Investment Trust Act of 1960. The legislation exempted these special-purpose companies from corporate income tax if certain criterion were met. It was hoped that the financial incentive would cause investors to pool their resources together to form companies with significant real estate assets, providing the same opportunities to the average American as were available to the elite. Three years later, the first REIT was formed.
JP Morgan Asset Management – Global Real Estate REIT is an example of a large REIT, which has $64.5 billion in assets under management and investments in office, retail, industrial and multi-family around the world. Per the below chart, average returns for the REIT market (compared to the S&P, Nasdaq and Dow Jones) demonstrate that the REIT market has outperformed these stock indices a majority of the last 40 years.
Another real estate investment vehicle that is accessible to average investors is the real estate syndicate. Syndicates tend to be companies with deep knowledge of a specific geographic market area and/or product type (i.e. shopping centers, warehouses, office buildings). Such companies raise equity capital from a relatively small group of investors who want to own a substantive share in a specific asset or small related group of assets.
Depending on the company, the minimum investment amount can range from $25,000 to $100,000. Investors get all of the benefits of owning commercial real estate assets (including cash flow and equity return upon sale of the asset), access to much larger and higher quality assets than they likely could access on their own, and professional property and asset management working on their behalf. Often, because many syndicators have a narrow geographic focus, investors get the chance to own real estate located within their own community. These characteristics are in contrast to REITs, which are entirely passive investments in a huge pool of assets that may be spread around the country or globe and of which any individual investor owns only a miniscule fraction.
Some syndicates offer the approach of investing in a fund that will be invested in group of properties meeting a certain set of criteria. Other syndicates seek capital deal by deal, providing investors the opportunity to deeply understand the risk and opportunities involved with the specific asset(s) and thoroughly evaluate the projected financial returns. Evaluating the right syndicate to invest with is often as much about the capability and competence of the company’s management team as it is about the particular characteristics of a specific piece of real estate.
Flagstaff Holdings which operates within the Freeman Myre Commercial Real Estate Firm is run by Andrew Freeman and Dan Cohen. Our firm has been invested in multiple properties in the Boulder area over the last twenty years with local investors from the Boulder community. Our most recent purchase was a 46,400 square foot 100% leased industrial building in Broomfield which fit well within our business plan of acquiring industrial and flex buildings in the Boulder County market over the next few years.
If you are interested in investing in the local commercial real estate market, you can reach us firstname.lastname@example.org or email@example.com . To learn more about Flagstaff Holdings visit our website at www.flagstaffholdings.com.
Flagstaff Holdings is a commercial real estate firm based in Boulder Colorado.