Values are up. Rents are rising, Cap values are at historical lows in some markets. It’s a strengthening economy. Then there are the prospects of higher interest rates, ongoing inflation, and increased taxes with new regulations perhaps around 1031 exchanges. Growth may be slowing some already.
Is now the time to sell and take profits? Or is there a case for the buy-and-hold investor?
It’s a tricky question that doesn’t have a single answer.
“The current environment of historically low interest rates and the opportunity to still utilize 1031 exchange rules favors sellers seeking to realize gains in such assets as multifamily or industrial real estate,” Michael Silver, chairman of Vestian, tells GlobeSt.com. “The consideration for sellers who can hold certain assets such as multifamily apartments addresses the longer-term investor who can realize rents that will appreciate during an inflationary period.”
The decision primarily comes down largely to strategy and time horizons.
“Speaking from the multifamily perspective, I think any owner contemplating a sale in the next couple of years should consider a sale now,” Danny Mantis, director at Kiser Group, tells GlobeSt.com. “What we’re seeing is buyer demand is higher than available inventory, which has created a market that is very favorable to sellers.
And yet, there are “many reasons for the buy and hold investor to be bullish on commercial real estate,” says Aaron Jodka, research director for U.S. capital markets at Colliers. “Rent growth, particularly in industrial, life science, and multifamily, has been robust. These rent increases are driving higher valuations on properties and imply value creation with a mark-to-market investment strategy. While interest rates are likely to rise, they are still at historic lows. There is a record amount of capital earmarked for commercial real estate waiting to be deployed.
But vigilance is necessary.
“Given changing market dynamics, investors must remain consistently tuned in to the market on both a macro and micro level to best understand how current factors impact their investments,” says Nelson Stabile, principal at Integra Investments. “Additionally, understanding key performance indicators at the asset level and relative to the competitive set is critical. Typically, selling creates liquidity, which allows for capital to be reinvested into new opportunities. On the other hand, timing the market for a perfect exit is never easy. The approach would differ based on the asset class and the geographic location, as each market has varying macro and micro short-term and long-term influences.”