NASHVILLE, TN: A wide angle generic view of the Nashville downtown skyline. (Photo by Brian Spurlock/Icon Sportswire via Getty Images)
Icon Sportswire via Getty Images
If you’re looking to invest in commercial real estate, you’ll find opportunities in a wide variety of asset classes, ranging from multifamily to office, industrial, retail, hospitality, self-storage, data centers, and land development. You’ll have to make decisions related to geography as well. For instance, you might invest in major metro areas, growing secondary markets, or emerging neighborhoods. While having so many choices can be a benefit, it may also make it easy to become distracted or spread across too many categories.
From my 25-plus years of experience in commercial real estate, I’ve seen some of the most successful investors often take the opposite approach. Rather than trying to become experts in everything, they focus on becoming Insiders in one area. That specialized knowledge allows them to recognize opportunities that others miss and make decisions that generate returns.
Invest in What You Know
Markets go through cycles and fluctuations. One year, you may find that headlines feature industrial properties. The next year, investors may be talking about data centers or office buildings making a comeback. Chasing whichever asset class appears to be generating the highest returns can leave investors competing against more experienced buyers who already understand that niche.
Instead, you can choose to gain a competitive advantage by developing deep expertise in a particular market or property type. That knowledge helps you understand both current values and trends as well as emerging and future opportunities.
Become the Expert Everyone Calls
When I started my career in brokerage, I was assigned a particular territory in Manhattan. I spent the next weeks immersing myself in learning every detail about those blocks. I walked the neighborhood and got to know the people there as well. Within a few months, I knew more about that neighborhood than many brokers who had been working in the market for years.
The same principle applies to investing. The more familiar you become with one market, the easier it becomes to recognize when a property is underpriced, when demand is shifting, or when a neighborhood is ready for growth. In addition to looking at market reports, you’ll be able to use your Insider knowledge to assess deals.
Look Beyond Today’s Reports
While it’s important to understand broader market trends, keep in mind that headlines rarely tell the whole story. For instance, one asset class may receive current attention while another quietly presents attractive opportunities. The same can be true geographically. A city that has undergone challenges may already be showing signs of recovery long before national media begins reporting on it.
When you know your market well, you’ll be able to notice subtle changes that others overlook. You see new employers moving into an area, infrastructure improvements being planned, zoning changes that could increase property values, or new retailers that signal growing consumer demand. These are often the indicators that create opportunity before prices begin to rise.
Successful investors are constantly looking for answers to questions: Which companies are expanding? Where is population growth occurring? What transportation projects are planned? Which neighborhoods are attracting new businesses? The answers to those questions can often provide a clearer picture of future opportunity than simply following the latest investment trend.
As you look beyond the headlines, keep in mind that the media often features what most investors are looking for. As you look for potential equity partners, you may find it challenging to raise capital for an investment that doesn’t follow the headlines. For this reason you may need to explain to your investor base why you believe the outlier investment is compelling.
Build Your Competitive Advantage
Commercial real estate will continue to evolve in the next months and years. New technologies will create demand for different property types, interest rates will rise and fall, and markets will experience periods of expansion and contraction. While those cycles are inevitable, specialization remains one of the few competitive advantages that investors can control.
Rather than trying to become an expert in every asset class or every city, you can choose one market and learn everything you can about it. Study recent sales, meet local owners and brokers, and review zoning and development plans. Pay attention to the employers that are moving into the area. Over time, that expertise will put you in a strong position against competitors.
While there will always be changes in the market and trends to watch, lasting success in commercial real estate investing is often built on in-depth knowledge. By developing a thorough understanding of a specific market, property type, or neighborhood, you’ll be better equipped to identify opportunities and make informed decisions. Over time, that expertise will help you stay ahead of the market and uncover new opportunities.
