Exclusive Content: Why We’re Investing in Quality Real Estate at the Top of the Market Rather Than Value-Add
As we look at the white hot commercial real estate market, it’s clear that value-add and opportunistic investors are chasing deals in new asset classes and locations that are less than ideal. And it makes sense: they are return-driven, happy to take more risks to chase higher yields. But when the market inevitably comes down, they’ll have more to lose.
True to our contrarian investment philosophy, we’re taking a different approach. Rather than following this trend, we’re scouring swaths of submarkets – from Bethlehem, Pa., and Suwanne, Ga., to Chapel Hill, N.C., and from Warren, Mich., to Sharon, Mass. – looking for quality investments in one category: grocery-anchored retail in vibrant suburban locations.
We believe this is a sound approach because now is the time to focus on what you know best – which for us is grocery-anchored retail – and the security of your income stream as the market inevitably cools down. Grocery-anchored retail is, by nature, a stable property type that offers recession-proof essentials (food, banking, alcohol, dry cleaning, etc.) in an accessible way. Add those qualities to the property’s location, the tenants, and the individual attributes that make each site unique, and we think it’s a winning combination.
And the numbers back up our claims. According to DTZ, at the close of first quarter 2015, shopping center vacancy stood at 8%, with vacancy levels even lower (below 5%) for premium shopping center space. Community, neighborhood, and strip centers account for the majority (67.1%) of this inventory with just under 3.6 billion sq. ft. of product. As we continue to see increased levels of urbanization and suburban housing development, these properties will spur new opportunities and demand for this type of shopping center. These properties aren’t going anywhere- and now, at the top of the market, is the smart time to make this investment.
At a time when prices are high and there are many investors chasing the same properties, it’s time to move away from the herd mentality toward quality.