Exploring Asset Classes to Consider in Today's Real Estate Market

By Anthony Migliore, Senior Advisor

The real estate market is constantly evolving, and it is important to stay informed about the various asset classes available for investment. In today's market, there are four key asset classes that investors should be aware of: commercial, residential, industrial, and hospitality.

Commercial real estate is a broad category that includes properties used for business purposes, such as office buildings, retail stores, and warehouses. This asset class is often seen as a stable investment, as long-term leases can provide steady cash flow for investors. However, it is important to note that the success of a commercial property investment is highly dependent on the local economy and tenant demand.

Residential real estate includes properties used for housing, such as single-family homes, apartments, and condominiums. This asset class can be a great investment for those looking for steady, long-term cash flow through rental income. Additionally, residential properties can appreciate in value over time, providing a potential return on investment through appreciation.

Industrial real estate includes properties used for manufacturing, warehousing, and distribution. This asset class is often overlooked by investors, but can provide stable cash flow through long-term leases. Additionally, industrial properties can be a great hedge against inflation, as rising prices can lead to higher rental rates.

Hospitality real estate includes properties used for lodging, such as hotels and resorts. This asset class can be highly profitable during times of economic growth and increased travel, but can also be volatile during economic downturns. Hospitality properties require significant capital investments and operational expertise, but can provide high returns for experienced investors.

In a recent Forbes article, James Nelson highlights four specific asset classes that investors should know about in today's real estate market. Let's take a closer look at these asset classes and why they matter.

1. Life Science Real Estate:

The demand for life science real estate has increased in recent years due to the growth of the biotech and pharmaceutical industries. Life science real estate includes laboratories, research facilities, and manufacturing plants. According to the article, the life science sector is expected to continue growing, and investing in life science real estate can be a lucrative opportunity.

2. Multifamily Real Estate:

Multifamily real estate has always been a popular investment option, and it remains so today. The pandemic has changed the way people view their living spaces, and more people are choosing to rent rather than own. Additionally, the demand for affordable housing continues to grow, making multifamily real estate a stable investment option.

3. Data Centers:

Data centers are essential to our digital economy and have become an increasingly popular investment option. Data centers provide space and power for storing and processing digital data, and the demand for data center services is only expected to increase. As more businesses move their operations online, investing in data centers can be a smart choice.

4. Build-to-Rent:

Build-to-rent is a relatively new asset class that involves building single-family homes or townhouses for the purpose of renting them out. The build-to-rent model offers several advantages, including the ability to build homes quickly and with greater efficiency than traditional homebuilding methods. This asset class has gained popularity in recent years due to the increasing demand for rental housing.

These asset classes offer unique investment opportunities for those looking to diversify their real estate portfolio. As with any investment, it's essential to conduct thorough research and consult with a professional before making any decisions. Keeping up with the latest trends in the real estate market is crucial to making informed investment decisions.

How the Hotel and Office Markets are Intertwined: Understanding the Correlation

By Anthony Migliore, Senior Advisor

The pandemic has had a significant impact on the commercial real estate industry, particularly in the hotel and office sectors. As companies and individuals have adapted to remote work and virtual meetings, the demand for office space has decreased, while the hotel industry has struggled with travel restrictions and safety concerns.

A recent article by the Jacksonville Business Journal delves into the correlation between the hotel and office markets and how they can affect each other. The article highlights that as more people work remotely, there is less demand for office space, which can lead to higher vacancy rates and lower rents. This can also impact the demand for hotel rooms, as fewer business travelers means fewer overnight stays.

However, the article also notes that the hotel industry can provide a potential solution to the office market's challenges. With hotels facing lower occupancy rates, some property owners have begun exploring the option of converting hotel rooms into office spaces. These "work from hotel" options can provide companies with a flexible, short-term solution for office space while reducing vacancy rates in the hotel industry.

Another factor that can impact the hotel and office markets is the overall health of the economy. As the economy continues to recover from the pandemic, companies may begin to expand and hire more employees, increasing the demand for office space. This could also lead to an increase in business travel and a corresponding increase in demand for hotel rooms.

The article also highlights the importance of location in both the hotel and office markets. Properties located in desirable areas with good access to transportation and amenities are likely to perform better than those in less desirable locations. In addition, properties with a strong reputation for cleanliness and safety are likely to be more attractive to tenants and guests.

While the pandemic has presented significant challenges for both industries, it has also opened up new opportunities, such as the conversion of hotel rooms into office spaces. As the economy continues to recover, it will be interesting to see how the hotel and office markets evolve and adapt to the new normal.

Should You Invest in Commercial Real Estate Private Equity?

By Anthony Migliore, Senior Advisor

Commercial real estate has long been considered a lucrative investment opportunity for those looking to diversify their investment portfolio and generate stable returns. Within the realm of commercial real estate investing, private equity has emerged as a popular and effective way to invest in commercial properties.

What is It?

Commercial real estate private equity refers to investments made in commercial properties through a private equity fund. Private equity funds are investment vehicles that pool capital from multiple investors to acquire, develop, or manage commercial real estate properties. These funds are typically managed by experienced real estate professionals who have a well-informed understanding of the market and can identify lucrative investment opportunities.

One of the key aspects of commercial real estate private equity is that it offers investors the opportunity to invest in larger and more sophisticated properties that may be beyond the reach of individual investors. Private equity funds often focus on a specific property type, such as office buildings, retail centers, or multifamily properties, and may invest in properties located in different geographic regions to diversify risk.

Why Invest in Commercial Real Estate Private Equity?

Investing in commercial real estate private equity can offer several benefits to investors. Here are some compelling reasons why investors choose to invest in commercial real estate private equity:

1. Diversification: Commercial real estate private equity provides an opportunity to diversify an investment portfolio beyond traditional asset classes, such as stocks and bonds. By investing in different types of commercial properties and geographic regions, investors can spread their risk and potentially enhance their overall portfolio performance.

2. Higher Potential Returns: Commercial real estate has historically delivered strong returns compared to other asset classes. Private equity funds often target higher returns by leveraging their expertise in identifying undervalued properties, implementing value-add strategies, and actively managing the properties to generate income and appreciation.

3. Professional Management: Investing in commercial real estate private equity allows investors to leverage the expertise of professional real estate managers who have a track record of success in the industry. These managers handle property acquisitions, financing, property management, and disposition, relieving investors from the day-to-day responsibilities of property ownership.

4. Access to Larger Deals: Commercial real estate private equity provides access to larger and more sophisticated deals that may not be available to individual investors. This allows investors to participate in properties with higher valuations, potentially leading to higher returns.

5. Diversification within Commercial Real Estate: Private equity funds often focus on specific property types, allowing investors to diversify within the commercial real estate sector. This can provide exposure to different property types, such as office, retail, industrial, or multifamily properties, and mitigate risk associated with a single property type.

How to Invest in Commercial Real Estate Private Equity.

Investing in commercial real estate private equity typically involves a process that includes the following steps:

1. Negotiating the terms: Once an investor has decided to invest in a deal, they will need to negotiate the terms with the sponsor. This includes the investment amount, preferred return, equity split, and other relevant terms.

2. Funding the investment: After agreeing on the terms, the investor will fund the investment typically through wire transfer, ACH, or other forms of payment.

3. Monitoring the investment: The investor will typically receive regular updates on the investment's performance and should monitor it to ensure that it meets their expectations.

4. Exiting the investment: The final step involves exiting the investment. This can be achieved through a sale or refinancing of the property, distribution of profits to investors, or other exit strategies.

Some Helpful Resources

1. Private Equity International: This is a leading source of news and analysis on the private equity industry. It offers articles, reports, and research on the latest trends and best practices in private equity.

2. The Institutional Limited Partners Association (ILPA): This organization represents the interests of private equity investors, and provides resources and research to help investors make informed decisions. The ILPA offers research on private equity performance, due diligence, and other key topics.

3. The Private Equity Growth Capital Council (PEGCC): This organization represents the interests of private equity firms and investors in the United States. It provides research, advocacy, and educational resources on the benefits of private equity investment.

4. The Harvard Business Review: This publication offers articles and research on a wide range of business topics, including private equity. It provides insights into the latest trends and best practices in private equity, as well as case studies of successful investments.

5. The Financial Times: This publication offers in-depth coverage of the financial industry, including private equity. It provides analysis and commentary on the latest trends, as well as research and reports on private equity performance and best practices.

6. The Wall Street Journal: This publication offers coverage of the financial industry, including private equity. It provides analysis, news, and commentary on the latest trends, as well as research and reports on private equity performance and best practices.

7. PitchBook: This is a leading provider of private equity and venture capital research, data, and analytics. It offers insights into the latest trends and best practices in private equity, as well as data on private equity performance and deal activity.

8. The National Venture Capital Association (NVCA): This organization represents the interests of venture capital investors, and provides resources and research to help investors make informed decisions. The NVCA offers research on venture capital performance, due diligence, and other key topics.

9. The Global Private Equity & Venture Capital Report: This report is published annually by Bain & Company, and provides insights into the latest trends and best practices in private equity and venture capital. It includes data on fund performance, deal activity, and industry trends.

10. The Private Equity Index: This index is published quarterly by Cambridge Associates, and provides data on the performance of private equity funds. It includes data on fund performance by vintage year, industry, and geography.

Please note that the information provided in this article is for educational purposes only and should not be construed as financial advice. Investing in commercial real estate private equity involves risks and should only be done after consulting with a financial professional. The author and publisher of this article are not responsible for any financial decisions made by the reader based on the information presented herein.

Adaptive Reuse: The Future of America's Aging Malls

By Anthony Migliore, Senior Advisor

America's retail industry has been in a state of flux for years, with the rise of e-commerce and changing consumer habits leading to the decline of traditional brick-and-mortar stores. As a result, many shopping malls across the country have become outdated and are struggling to attract tenants and shoppers. However, there is hope for these aging malls through the process of adaptive reuse.

Adaptive reuse refers to the process of repurposing an existing building or site for a new use. In the context of commercial real estate, adaptive reuse involves converting a mall or other retail property into a different type of space, such as office space, residential units, or mixed-use developments.

The benefits of adaptive reuse for aging malls are numerous. First and foremost, it can breathe new life into a property that might otherwise become obsolete. By repurposing a mall into a new type of space, developers can bring in new tenants and create a more vibrant and diverse community. This can help to attract new businesses and residents to the area, which can in turn lead to further investment and economic growth.

Another benefit of adaptive reuse is that it can be more environmentally sustainable than building new structures from scratch. By repurposing existing buildings, developers can reduce the amount of energy and resources required to construct new buildings, which can help to reduce carbon emissions and other environmental impacts.

In addition to the technical aspects, it's important to consider the community's needs and desires when repurposing a mall. For example, adding community spaces such as a public library or a park can be beneficial to the surrounding area.

Repurposing a mall into an apartment building, as an example, requires a different approach than traditional apartment building construction. The open floor plans of a mall can allow for more flexible apartment layouts, but the plumbing and electrical systems will need to be reworked to accommodate residential use.

One example of successful adaptive reuse of a mall is the former Westside Pavilion mall in Los Angeles. The mall was purchased by Google in 2018 and is currently being converted into a new office campus. The project will involve renovating the existing buildings and adding new structures, with a focus on sustainable design features such as solar panels and green roofs.

Another example of successful adaptive reuse is the transformation of the Regency Square Mall here in Jacksonville, Florida. This mall, which was once a popular shopping destination, fell into disuse as online shopping became more prevalent. However, in 2021, the mall was purchased by a development group with plans to turn it into a mixed-use development featuring office space, retail space, and affordable housing. This project will provide much-needed housing options in the area while also revitalizing the mall and bringing new business to the community.

The Orange Blossom Mall, located in Ft. Pierce, Florida, is another adaptive reuse success story. The former shopping center was transformed into a business park offering education services, flex and office space, and retail shops. Prime Rock Energy Capital, the developer that led the redevelopment effort, bought approximately 26 acres of the mall's property for $11 million in July of 2021. The 39-acre site was renamed the Renaissance Business Park and created 600 jobs. According to Michael O'Neill, the principal of Prime Rock Energy Capital, the site is quite large, spanning approximately five city blocks, which allows for a flexible combination of different spaces.

But adaptive reuse is not without its challenges. One of the main challenges is the need for significant renovations and upgrades to the existing buildings to make them suitable for their new use. This can be expensive and time-consuming, and may require significant changes to the building's layout and infrastructure.

Additionally, zoning and land use regulations can be a barrier to adaptive reuse in some areas. Some municipalities may have restrictions on what types of buildings can be converted into certain uses, or may require lengthy approval processes for changes in land use.

Despite these challenges, adaptive reuse remains a promising option for developers and investors looking to revitalize aging malls and other commercial properties. By leveraging existing buildings and infrastructure, developers can create new opportunities for growth and development while minimizing environmental impacts.

Q&A

Q: What are some common types of adaptive reuse for aging malls?

A: Some common types of adaptive reuse for aging malls include office space, residential units, mixed-use developments, industrial, and entertainment venues such as movie theaters or bowling alleys.

Q: What are some of the challenges associated with adaptive reuse?

A: Challenges with adaptive reuse can include the need for significant renovations and upgrades to existing buildings, zoning and land use regulations, and potential difficulties in attracting new tenants or buyers to the repurposed property.

Q: How can adaptive reuse be more environmentally sustainable than building new structures from scratch?

A: Adaptive reuse can be more sustainable because it avoids the need to demolish existing buildings and construct new ones, which requires a significant amount of energy and resources. By repurposing existing buildings, developers can reduce carbon emissions and other environmental impacts associated with new construction.

Understanding Triple Net (NNN) Charges in Commercial Real Estate

By Anthony Migliore, Senior Advisor

If you're involved in commercial real estate, you may have heard the term "triple net" or "NNN" charges. These charges are a common feature of commercial leases, and they can have a significant impact on the financial performance of a property. Here's what you need to know about NNN charges and how they work.

What Are NNN Charges?

In a commercial lease, NNN charges refer to the expenses that the tenant is responsible for in addition to the base rent. These expenses typically include property taxes, insurance, and maintenance costs for the property. The tenant is responsible for paying these charges directly to the landlord, in addition to their monthly rent payments.

How Are NNN Charges Calculated?

The exact amount of NNN charges can vary depending on the specific terms of the lease agreement. Typically, the landlord will estimate the annual costs for property taxes, insurance, and maintenance, and divide that amount by the total square footage of the property. This results in a per-square-foot charge, which is added to the base rent to determine the total monthly rent payment.

Why Are NNN Charges Important?

For landlords, NNN charges are an important source of revenue that can help offset the costs of owning and maintaining a commercial property. For tenants, NNN charges can be a significant expense that must be factored into their operating costs. Understanding the specifics of NNN charges is crucial for both parties to negotiate a fair lease agreement that benefits all parties involved.

NNN charges are a common feature of commercial leases that can have a significant impact on the financial performance of a property. By understanding how NNN charges work and how they are calculated, landlords and tenants can negotiate lease agreements that are fair and mutually beneficial. For more information on NNN charges and other aspects of commercial real estate, consult with a knowledgeable real estate agent or attorney.

Understanding the Tax Implications of Selling Commercial Property

By Anthony Migliore, Senior Advisor

If you're thinking about selling a commercial property in the Jacksonville area (or anywhere), it's important to understand the tax implications of the transaction. While selling a property can result in a significant financial gain, it can also trigger certain tax obligations that you'll need to be aware of. Here's what you need to know.

Capital Gains Taxes

When you sell a commercial property, you'll typically be subject to capital gains taxes on any profit you make from the sale. The amount of tax you'll owe depends on a variety of factors, including the length of time you owned the property, the cost of any improvements you made, and the current tax laws in your area. It's important to consult with a tax professional to determine your exact capital gains tax liability.

Depreciation Recapture

If you've been taking depreciation deductions on your commercial property, you may also be subject to depreciation recapture taxes when you sell. Essentially, this means that you'll need to pay taxes on the depreciation you claimed, as well as any profit you make from the sale. Again, the exact amount of depreciation recapture taxes you'll owe will depend on a number of factors.

1031 Exchanges

One option for deferring capital gains taxes and depreciation recapture taxes when selling a commercial property is to participate in a 1031 exchange. This allows you to reinvest the proceeds from the sale into a similar property, without incurring taxes on the profits. However, there are strict rules and timelines associated with 1031 exchanges, so it's important to work with a qualified intermediary to ensure compliance.

Selling a commercial property can have significant tax implications. By understanding the capital gains taxes, depreciation recapture, and 1031 exchange options, you can make informed decisions and minimize your tax liability. To ensure that you're making the most of your commercial property sale, consult with a knowledgeable tax professional and commercial real estate agent.