These Markets Least Likely to Improve

ATLANTA—Jacob Frydman, CEO of United Realty, has some contrary views—and some forward-looking insights that commercial real estate investors need to hear.

In recent weeks, I've been talking with Frydman about how tighter underwriting demands are impacting lending. He also shared with me his insightful take on investor opportunities, challenges, and fears and how he sees investor strategies changing in 2015.

In our final installment of this exclusive series, Frydman shares his thoughts on where the commercial real estate momentum is. He also gets real about the chatter over secondary and tertiary markets and offers some sage advice for investors this year.

GlobeSt.com: What sectors do you see as gaining momentum with investors in 2015? And what will drive that momentum?

Frydman: Multifamily, industrial and hotel. These are sectors that continue to provide demand, but we have seen little addition in supply over the past 5 – 7 years. Multi-family and hotel properties, especially, also have the ability to quickly adjust rents to account for rising rates. That provides them an advantage over fixed and flat rental stream assets.

GlobeSt.com: Do you expect any movement toward secondary and even tertiary markets? Why or why not?

Frydman: No. Those are the markets least likely to improve as rates begin to rise, and there are plenty of deals in better markets.

Globest.com: What about class B or class C properties? Do you see any interest from investors there?

Frydman: There may be an increased interest in class B and C properties in better geographies as these assets will provide value-add opportunities. The next few years will see a return to fundamentals which will place more of a burden on the investor to enhance property value.

GlobeSt.com: What advice would you offer to commercial real estate investors for 2015?

Frydman: Caution and diligence. I do believe that commercial real estate provides huge upside potential—in virtually any cycle—but you've got to have a nose for the deal. In the next cycle, being a passive investor and realizing gains from cap rate compression just isn't going to be an option. But if you know what to look for, and how to execute to enhance value, you're going to be in a great position to outperform.