The Wall Street Journal reported a couple of weeks ago about the opportunities that exist in this current market for small investors of commercial properties.

A lot of my clients fit this category and I thought I would pass this information on to the readers of the Boston Real Estate Blog. Unfortunately, the WSJ is a subscription site, so sadly, I can’t link the article to this post. However, I will post the main chunks of it here since it is a great article.

Basically, the credit crunch is putting a strangle hold on the acquisitions department of big institutions. Think REIT’s, Pension Funds, and Private Equity firms that rely heavily on financing when making real estate investments. This has created an opportunity for local small investors who are normally bested by these large firms. Take the Journals example for instance:

When Andrew Brooks first offered $15 Million for a medical-office building in Valencia, Calif., in early August, the seller turned down the 44-year-old orthopedic surgeon.

But just three weeks later, the seller called back Dr. Brooks, who lives in Los Angeles. The two large real-estate investment trusts that had knocked the doctor out of the running with their bids were no longer interested. Dr Brooks believes that the companies were unable - or unwilling - to come up with the cash.

…He quickly put down a “substantial” nonrefundable cash deposit for $800,000 less than he had originally offered, and is waiting for the deal to close.

You better believe deals like these are happening in Boston! Southern California is certainly feeling the affects of a slow real estate market more than the Boston market. But that does not protect us completely from failed projects and squeamish institutional investors.

Right now the sweet spot for “small investors’ is the $5 - $15 million range, especially for apartment buildings and retail centers. These rents will work for the smaller investors who are looking for cash flow. At this price level institutions, who have to meet certain yield requirements for their investors, would be speculating on property appreciation and in this market it wont provide the returns they are looking for.

My appointment book can verify this. 75% of my time these past couple of months has been servicing my commercial clients. This opportunity will fade as the credit markets loosen and the big firms get back into the game. For now though the small guys are getting some great deals!

Reference:
Small Investors Gain an Edge in Properties, By Kemba J. Dunham, The Wall Street Journal

Filed under: Boston Real Estate Editorial, Boston Real Estate Trends and Statistics