Multi-Family, Commercial Real Estate Investments See Strong Gains In 2021
This article first ran in the Business Journal on February 21st, 2022: Article link.
If there was any concern about what the investment market would look like after COVID, the year-end numbers show us commercial real estate rebounded in a big way in 2021. Investors forged ahead, pouring money into commercial and multi-family properties. There was over $2.5 billion invested in the Central Valley in apartments over 10 units and commercial properties over $1 million (industrial, retail, office) — the most ever. Historic low interest rates, coupled with rising inflation, contributed to investors turning to real estate as the preferred investment alternative.
Investors bet big on apartments
Over the course of 2021, there were 82 transactions of apartment complexes over 10 units in the Central Valley, totaling $423 million. The top four deals accounted for 40% of the total sale volume — Parador Townhomes ($63 million) in Clovis, The Grove Merced ($38.2 million) in Merced, Park West Apartments ($23.5 million) in Fresno, and Axis at Compass Pointe ($23.5 million) in Merced. Cap rates for apartment complexes fell to 5.65% — the lowest since 2005. The demand for these properties has caused downward pressure on returns while appreciation is through the roof. The $96,875 average sale price per unit was $36,000 above the average over the last 15 years. While investors from outside the Central Valley are seeing skyrocketing prices on apartments in other parts of the state, and even nationwide, they have flocked to the Central Valley to find opportunities. This is evident as 80% of buyers of apartments in 2021 were from outside the Central Valley. With little product on the market and a major demand for multi-family properties, apartment sales have been one of the hottest real estate investments.
COVID drives huge year in CRE sales
Commercial investments (retail, office, and industrial) over $1 million also saw a big year in 2021 with a leading 355 transactions and $2.13 billion in sales volume, just shy of the 2018 volume peak of $2.16 billion. There were two large deals during the year that stood out. An Amazon facility in Stockton sold for $105 million and United Security Bank Building in Fresno sold for $96 million. The industrial market has seen a seismic shift in the way ecommerce drives our everyday life. This asset class was especially attractive to investors last year with 90 transactions, when comparatively, our market averaged 45 per year over the last 15 years. The office sector saw record highs in investment volume, $350 million, and 72 transactions, which was a bit surprising considering the office sector is experiencing its own shift regarding square footage requirements and an increase in remote working. Retail saw its second highest year ever with 193 transactions and $822 million in sales volume. Retail was crushed in 2020 with shutdowns and ever-changing restrictions due to COVID, but it bounced back with investors and lenders who in 2021 felt very comfortable diving into these properties.
Promising days ahead
As we head further into 2022, the trend of high sales volume and transactions are expected to continue. For apartments, investors are attracted to the necessity of the asset and the opportunity to increase rents, which will generate higher returns. Even with rent control statewide, as inflation increases, investors will be able to increase rents 5% plus CPI, with a maximum of 10%.
Commercial properties are also expected to continue to see a high volume of sales in 2022 with the major contributors to this prediction being rising inflation, the desire to invest in bricks and mortar, and low interest rates that give buyers the ability to lock in long term debt.
Industrial should continue to be the most sought-after sector in commercial, but also the most difficult properties for buyers to find as there is limited product in the market.
The retail sector has seen a lot of demand due to the long-term stability and passive income of single tenant properties with national tenants signing 10+ year leases. Since COVID, investor demand has continually increased for well positioned shopping centers with a good tenant mix. Overall, retail investment sales are expected to remain strong in 2022.
Office will be a sector that will offer investors the highest return due to the inherent risk associated with the evolving (and uncertain) post COVID office make-up.
Overall, look for investors to keep their foot on the gas pedal as they look for commercial real estate and apartment investments to be a primary place for their capital during the year after such a strong showing in 2021.
Visintainer Group tracks all sales in the Central Valley and generates quarterly reports. All information gathered is from CoStar and Visintainer Group tracking system. If you would like the full 2021 recap report for apartments or commercial, please email Brett Visintainer at [email protected].
Brett Visintainer, CCIM is a Commercial Investment Advisor and the Principal of Visintainer Group in Fresno, CA. Formed in 2018 and built on a foundation of investment real estate, the Visintainer Group is a client-first commercial real estate firm. The Group has executed over $450 million in transactions across the United States. Brett specializes in commercial property acquisitions and dispositions and 1031 exchanges for owners in the Central Valley, Sacramento, and Central Coast markets. He can be reached at 559.890.0320 or [email protected].