CRE Investor Handbook
Investment in Commercial Real Estate (CRE) is one of the best financial avenues to get high returns on investment. Each investment has its ebbs and flows and it is necessary to strategize in the best possible way. CRE Investor Handbook is an ideal tool that provides a framework for implementing an institutionalized approach to investment across asset classes through discussions and practical information that will help to identify target opportunities and evaluate results. The internal rate of return (IRR) is one of the most important yardsticks in the CRE Investor Handbook that helps in measuring the overall success of commercial real estate investment. Some of the Commercial Real Estate (CRE) managing platforms like WiseX will provide Investors with a high rental yield of 8%-10% and year on year capital appreciation of 17%-25% IRR using their technical and real estate expertise along with incorporating the principles of CRE Investor Handbook.
Commercial real estate (CRE) requires huge investment in crores that is not affordable for a single retail investor on his own. Thus, REITs (Real Estate Investment Trust) and fractional ownership are the two optimal ways that make commercial real estate investment possible for retail investors. CRE is mostly unaffected by market fluctuations and hence, it is an ideal long-term investment avenue. The first and foremost thing to be looked upon in CRE investment is identifying and managing asset classes as this is directly proportional to the returns on investment. There are three important asset classes namely Class A, Class B, and Class C, which are differentiated by age, quality, rent, maintenance, and other factors of a building.
After an asset is selected, now it’s time for managing these assets for maximum returns on investment. To accomplish this, an asset manager will act as a proxy to the investor and make important investment decisions to help the growth of the investor’s portfolio.
Problems faced in Commercial real estate (CRE)
Commercial real estate (CRE) is known for its notoriety in data asymmetry where one party in a transaction has more edge due to better information than the other party. This imbalance of information creates inefficient markets, monopolies, and moral dilemmas for both investors and asset managers. The performance of the commercial real estate market can be hard to fathom in markets where information is scarce and many of the transactions are private. Unlike the clearly defined market for stocks and bonds, gathering legitimate information in the realm of commercial real estate is very hard. There are obstacles like brokers and dealers who make the investors spend far too much than required and is a direct impact brought about by data asymmetry. Also, transparency plays a huge role for investors to confidently put their hand upon investing huge sums of money in commercial real estate of different asset classes. Transparency in commercial
real estate simply means open sharing of important data and insights to make a better judgment call on investing in the right assets. This lack of transparency will create a negative impact on the commercial real estate market and create a lack of trust among the investors.
It is the age of the millennials and old antiquated practices in commercial real estate are no longer viable for making any progress. Urbanism, Eco/Tech-Friendly spaces, amenity centers, and affordability drive the major decisions in any commercial real estate investment. To mitigate all the above problems of data symmetry, lack of transparency, and old antiquated practices, companies like WiseX make use of technology to bridge these gaps and create a better environment for investors that will make them well equipped to make the right asset choice to increase their returns on investment.
Solutions based on CRE Investor Handbook
Every investor should understand the below factors mentioned in CRE Investor Handbook to make the best decision on commercial real estate investment and achieve high returns on investment
Location
This is the most important factor when it comes to achieving high returns on investment in commercial real estate. Rent and Capital Appreciation are the two ways in which returns are made in commercial real estate and both vary based on the location. Always scout for locations that have more than 95% occupancy. Higher the occupancy, higher will be the income in the form of rent.
Building grade evaluation
Any two buildings in the same location may not have the same rent. Hence, it is imperative to make a solid building grade assessment based on quality. If the grade is A or B then the investors will get higher rent and higher tenant retention. Certifications with LEED gold or platinum ratings will attract multinational premium tenants which will increase returns, selling rate, and liquidity.
Demand / Supply
Every investor has to take into account demand and supply before making a decision of owning a commercial property. Every city in India has micro markets like Whitefield, Electronic City in Bangalore. Each of these markets has a great demand and supply relationship thereby increasing the returns on investment.
Rental yield analysis
It is the analysis of the percentage of the property value earned as a yearly rental income. There are two types of rental yield analysis
Market Rent Vs. In-place rent
It is an evolved concept that helps investors gauge the risk factors involved in asset classes. Let’s take an example
Consider three properties available at the same price but the rents are different :
Building X has Rs 10 as rent and Rs 100 as selling price.
Building Y has Rs 11 as rent and Rs 105 as selling price.
Building Z has Rs 9 as rent and Rs 95 as selling price.
Although Building Y looks the most profitable with Rs 11 as rent and Rs 105 as selling price. But a shrewd investor will check the current market rent and price and will find Building Z as the safest investment due to less probability of tenants vacating than I Building X and Z.
Base Rents Vs. Fitout Rents
Developers may entice the investors by showing rental returns including fitout rents. But the problem is, these fitout rents are charged per square foot for a maximum of 5years. After that, the rent will be at base rates. Investors have to be clear with this arrangement to reduce risk to reward ratio
Tenant Portfolio
A good tenant who pays rent in time, pays a higher deposit, stays longer will be a good tenant portfolio for the investor. Also, the lease structure and duration of the commercial property is much higher than the real estate property with 9 to 15 years normally occupied by MNC companies.
Interior and Exterior Design
Sometimes the investor will be asked to provide fully furnished buildings with all the facilities at fitout rates or sometimes the tenant will make the interiors as per his requirements. If a tenant chooses his own fitouts, then the chances of staying longer will be much higher.
Conclusion
- WiseX is one of the well-known tech-based asset managers that make use of big data analytics, predictive algorithms, and strict financial evaluations to identify the optimal asset classes and use fractional ownership process to help investors gain high returns from rental income and IRR through capital appreciation. Each asset is selected using predictive analytics across 30+ data points, 25 years of expert-level experience, and a proprietary SOUL process.
- Platforms such as WiseX allow an investor to invest in a thoroughly researched selection of assets that have a positive risk-return profile. WiseX provides complete end-to-end management during the entire investment to return process and makes the investment process seem like a mutual fund. An investor can now rely on WiseX to manage the assets efficiently and the investor will reap the benefits with a minimum of fuss.
