The hottest play in 2023?

Question

Curious the hottest play in 2023 that you can scale (rinse and repeat)? Could be CRE or Residential? I came across this article: https://www.wsj.com/articles/the-hottest-real-estate-play-is... and thought it was interesting.

Joel Owens · Answer

Hottest play retail centers?...lol

Value is in WHAT YOU KNOW. I often see these multifamily people get sucked in by retail centers at 8 caps and they are looking at 4 to 5 caps with multifamily and think they have the steal of a lifetime.

They buy it and then lose their ass. WHY? Because they have no clue what they are doing. You have to know the product. Sure some people have enough money where they might limp along and figure it out eventually and sell breaking even but many will lose most of their gains from other asset classes.

Let me give you an example. I would much rather have a single tenant investment credit grade then a 3 tenant buildings with weaker tenants in them ESPECIALLY if they are paying market rent for that box size.

The value isn't in the starting cap rate it's where the property is going in rent growth, how much in place rents are below market, the strength of each business operator, the recent expensive capital upgrades, etc. People focus on the wrong stuff with retail centers. Yes there can be good ones that make a lot of money but you have to know what you are looking at. That comes with time and experience so if you do not know work with someone who does ( broker, attorney, etc.)

Evan Polaski · Answer

@Chris C., could be my personal experience, but I feel strip centers have been "hot" for a while. Specifically, necessity based retail.

Retail, like all real estate and any business, has its own networks and nuances. To me the "hottest" play is the one you know.

One thing that I didn't catch in this article: what happens to retail when you are in a recession?  A lot of the data seems to be backwards looking, with a little current day quotes.  Not to say this isn't a good sector.  I am an LP in a neighborhood center fund.  To be clear, I signed my commitment over a year ago.  To date, they have called about 30% of my commitment.

I say this because: this isn't a 2023 hot trend.  This has been a popular asset class for several years now.  I still believe in the asset class, but there are a lot of nuanced risks.  Additionally, there has not been a lot of syndicators come up in this space, like multifamily and residential has seen with influencers peddling their master classes and consulting programs.

I am glad you shared.  Again, while I work in multifamily and invest in it, I always like when posts are made like this reminding this community that there is more out there than buying a SFR, Airbnb or investing in a MF syndication.

Chris C. · Answer

Evan,Thanks for the extensive reply. I always appreciate someones time they take away from their own stuff due to the fact it's all of our most valuable asset. That being said given your statement "the hottest play is the one you know" I agree with however I'm curious your opinion for people who don't have experience.I have some experience dealing with long term SFR tenants but not much in CRE but am interested in getting into it. My goals are to have scalable assets that have cash flow, appreciate, depreciate, and I get all the best tax incentives with as little overhead, and oversight as possible. I'm looking at self storage very hard in this regard. Do you feel that's the right fit in your experience?

Michael K Gallagher · Answer

We see very positive outlooks in well anchored strip centers.  when we are repping tenants we are looking for the best grocery anchored centers, and trying to be on an out parcel, end-cap, or inline as close to the anchor as possible.  Still a great asset, still a ton of demand for the asset especially when you start looking at the retail med and dental space.

Ronald Rohde · Answer

Redemption periods suck, its a forced hold period, statutory interest is OK, but it really screws with your return on capital if they wait and redeem at the end.

Evan Polaski · Answer

@Chris C. if you don't have experience in an area you want to become a master in, I recommend you look for a job in a company in that field.  Then you get paid to learn from people who are very successful in that space.

Not to say "success" is only measured by your income, but I learned a ton about the retail world: financing, due diligence, a bit of leasing and PM, etc because I worked for a retail operator.  I began investing in SFR and learned a bit from doing, but learned even more about syndications by working in my current role, as well as Multifamily PM, financing, underwriting, etc.  But to my initial comment about success, the most successful people I know in the real estate world did not just "go and do it".  They worked for others and took those lessons and connections to spin off on their own.

As an LP, I would never invest in someone wanting to learn with me money.  If I want to take that level of risk, I will go into VC, where someone may not have experience, but they have a unique idea.  You can turn SFR and small multi into larger multi experience, but owning SFR to buying a self-storage property has totally different systems, management styles, rules and regulations.

Finally, your last question: do you feel that's the right fit for my experience? No.  Your experience is in SFRs.  Your goals all lean to being an LP, not owning directly.  I don't care if it is self-storage or SFR, or office or retail: if you don't want to have continual oversight of your properties, you are not setup to be an owner.  Owning anything requires oversight, all the time.  It is your money and reputation at risk, if you are the owner/GP.

Henry Clark · Answer

Means you own the property subject to the waiting period.  Google for details.

Sam Calvanese · Answer

Henry - very informative post. thank you. I am newer here as well. Can you clarify, if they accepy your $5000 offer for example, what does it mean the property gets put back on the tax roll?

Alecia Loveless · Answer

@Chris C. Multi family has been the hottest play for me this year. I’ve snapped up some surprisingly good deals by moving faster than others and thinking more quickly and outside the box. They say the early bird gets the worm.

Unfortunately right now I’m in a holding pattern for a little while so am hoping a few deals I’m interested in sit tight where they’re at for a little longer.

I liked the suggestion of trying to buy tax property under value. Anywhere you can find deals that are in your wheelhouse and add value to them is probably a great place to be.

The hottest play in 2023?

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