I have a lot of interest in real estate investing, so I read a lot about trends and opportunities across the country. One of the odd things I see is the labelling distinction between types of investment properties. Single family homes, or SFH’s, are clearly labelled as such, but often everything else is lumped into the label “CRE” for Commercial Real Estate. To me, saying CRE is like saying “Hot Food.” It tells you nothing about the wide variety of property types that are grouped under that umbrella, and the variety is like grouping chicken noodle soup with a filet mignon steak or hot roasted chestnuts. A couple of examples to further reinforce the obvious:
- Apartment Building (Multifamily) – multiple tenants with low commitment to the property who come and go frequently, often in the middle of the night – CRE
- High rise office building, now half empty, multiple business tenants under various types of leases ranging from a year to perhaps 5 years – CRE
- Hospital, owned by a nonprofit corporation, run by doctors who really need a hospital management company to keep them afloat (and may soon sell to one) – CRE.
- Restaurant/Food Service – Subject to the whims of local appetites, COVID restrictions, and anything else that keeps people from eating out or eating at this particular place – CRE
While those may be examples of not very good real estate investments, depending on your risk tolerance profile, they are all generally referred to as Commercial Real Estate. So when you read about the good news – apartment rental rates continue to climb– or the bad news – your local (now closed) movie theater is owned by AMC who may or may not survive the threatened bankruptcy that hovers over them – keep in mind that this does not spell doom for CRE, just problems for that particular segment of CRE.
The good news: Lots of CRE is doing just fine, thank you.
- Multifamily properties that are well managed are doing great.
- Dollar discount stores are having great year-to-year growth as shoppers pay more attention to prices and value and less to fancy surroundings, particularly in suburban communities.
- Large chains of specialized medical properties – notably dialysis treatment and urgent care centers – are expanding as fast as they can across the country, then selling off their properties and signing long term leases so they can focus on the business and put their money into more new locations.
- Warehouse properties – well, if you shop at Amazon and get your purchases delivered the next day, you know how that’s going.
So what’s the point of this discussion? Don’t let your financial advisors rule out CRE because they read the bad news about chicken noodle soup and forget there’s a nice steak on the menu. Do your homework, expect them to do theirs, and make better investment choices as a result. A few years down the road you’ll be glad you did.
We are Your CFO for Rent.