IRVINE, CA—As cap rates decline on class-A properties in core markets, many firms are turning to value-add opportunities to maximize yield. In Part 1 of a two-part interview, GlobeSt.com spoke with Bill Shopoff, chairman, president and CEO of Shopoff Realty Investments, which specializes in value-add investments, about this growing segment of the market and where it is heading. In Part 2, to post at a later date, we discuss popular value-add strategies and property types.

GlobeSt.com: Where do you think the value-add market stands today?

Shopoff: The general market has clearly recovered since the lows of the recessionary economy, but there are still numerous opportunities. We tend to look at markets on a micro level; this perspective shows some cities and submarkets have been in a robust recovery for many years, while some are still in the midst of recovery like Las Vegas and Phoenix. In the best of times, there are still owners of real estate who are either undercapitalized or lack the skill set to manage the opportunities presented to them, and that is where a firm like ours steps in, with both capital and the requisite skill set to tackle challenging projects, with the plan to achieve outsized returns. There is still a large volume of debt maturities coming up over the next three or four years, many of which will face resizing issues and require a sale or additional capital invested to create a viable business plan.

GlobeSt.com: Where do you think this market is headed in 2015?

Shopoff: Overall, we feel the economy is continuing to mend. Corporate profits are at all-time highs and firms have healthy balance sheets. Generally, this should bode well for a continued recovery. The headwinds that must be factored in include interest-rate risk and US politics (including the 2016 election year), coupled with external risks such as foreign economic stability and continued wars and terrorist outbreaks. With careful planning, there will be a good selection of places to invest capital in 2015, but it will require investment dexterity and patience. In terms of value-add commercial real estate opportunities, the market is rife with opportunity.

Success relies, like so many things in life, on experience and expertise—firms that have the ability and know-how should continue to thrive, while those that do not are more likely to deliver a negative result for their investors.

GlobeSt.com: Are there value-add opportunities across the US? What regions are likely to have more opportunities?

Shopoff: There are definitely value-add opportunities throughout the US, including in those cities that have bene experiencing recovery for years. I think the office and retail sectors will have ample offerings to choose from, as well as hospitality, which is showing signs of recovery.

Additionally, we like repositioning opportunities that include a change in use, such as rezoning an older industrial facility to residential or apartments. Opportunistic real estate exists in every market in the country, but certainly the second- and third-tier cities have been largely overlooked and will provide for ample shopping opportunities over the next few years.

Stay tuned for Part 2 of this interview coming up on GlobeSt.com.