When it comes to commercial real estate investing, most investors think only about the four main asset types: multifamily, office, retail, and industrial. However, there are many other options, known as alternative real estate properties, that investors too often overlook.
These alternative investments offer many of the same return opportunities as their traditional counterparts, but often face less competition. If you’re interested in diversifying your commercial real estate portfolio, consider adding alternative investments.
Here, we are exploring these alternative properties, giving you a comprehensive look at several options. In addition, you’ll see how to invest in each of these properties and learn how our services can protect these investments.
- What Are Alternative Properties?
- Types of Alternative Real Estate Investments
- RV Parks
- Manufactured Housing and Mobile Home Communities
- Storage Units
- Senior Housing
- Medical Office Buildings
- Student Housing
- Other Alternative Real Estate Investments
- Ways to Purchase Alternative Properties for Every Investor
- Real Estate Investing: Looking Towards 2021
- Is Now the Right Time for Alternative Real Estate Investments?
- Alternative Real Estate and Commercial Property Management
What Are Alternative Properties?
Historically, commercial real estate investing has been a solid wealth-building strategy. Even as the economy grew and contracted, CRE has remained a relatively steady performer over the decades.
When you think about commercial real estate investing, what comes to mind? Undoubtedly, it’s traditional investment options: multifamily properties, office buildings, industrial, or retail properties. Each of these properties has potential benefits and drawbacks, as we discuss in this article. However, for investors looking to diversify their portfolios, alternative investments could be the key to success.
For investors looking to diversify their portfolios, alternative investments could be the key to success.
Alternative Investments: Real Property and Investment Funds
What are alternative investments? They are any property that falls outside the traditional four types mentioned above. That is, they’re a more imaginative form of commercial real estate investing, opening up the possibilities to investors from all backgrounds.
Real Property Alternative Investments
In terms of real property, the options are varied. For this article, we examine some of the most popular and lucrative alternative real estate properties:
- RV Parks
- Manufactured Housing Parks
- Storage Units
- Senior Housing
- Medical Offices
- Student Housing
- Raw Land
Each of these property types comes with both benefits and drawbacks. However, savvy investors can invest in multiple properties to effectively diversify their commercial real estate portfolio.
Real Estate Investment Funds
Furthermore, alternative investments aren’t necessarily real property. In some instances, investors might choose to invest in commercial real estate or alternative real estate properties via crowdfunding or investment funds. These options allow investors from all backgrounds to purchase shares in real property or mortgages. Recently, these types of alternative real estate investments have gained in popularity, allowing more people than ever before the opportunity to invest in real estate.
This article will discuss the various options for alternative real estate investments, show you how to invest in each, and answer your questions about this commercial real estate sector.
Types of Alternative Real Estate Investments
Alternative real estate investments are a broad spectrum of opportunities. Investors from all backgrounds can become successful through commercial real estate investments. No longer is commercial investing reserved for the ultra-wealthy. Instead, investors from all walks of life can purchase a piece of the real estate pie, no matter what their net worth might be.
First, let’s examine tangible properties, where investors can purchase assets with historically steady returns.
Of course, before we move on, it’s important to note that any investment – including commercial real estate – comes with inherent risks. While CRE properties have traditionally been a lucrative asset type, all investments come with the potential for significant losses. Before making a commercial real estate investment decision, contact a qualified and experienced real estate broker.
RV parks have always been a relatively painless commercial real estate investment. However, this asset class has exploded during COVID-19, becoming perhaps one of the most unexpected bright spots during an otherwise chaotic financial year.
As more Americans turned to the outdoors during the Coronavirus pandemic, RV sales exploded. Furthermore, drastically increasing unemployment numbers meant some families moved into their RVs full-time.
With so many more RVs on the road, RV parks have seen unprecedented upticks in daily usage. Popular RV manufacturers experienced incredible demand for new products in the summer of 2020. Some estimates say as many as 80% of RV purchases were made by first-time buyers. This data suggests that many families chose the open road, national parks, and RV parks over hotels or airports as the pandemic swept across the country.
While it’s too soon to know if this trend will continue in the coming years as Coronavirus wanes, many RV park owners and investors believe this asset class will see a continued return on investment.
How to Invest in an RV Park
At CXRE, we have helped plenty of investors purchase, renovate, or sell their RV parks. We know the RV park market in Texas and can help you identify whether this alternative real estate opportunity meets your needs.
There are two ways to purchase an RV park. First, you can buy raw land or vacant property and build an RV park from the ground up. This often includes adding water and electricity for each space, bathroom and shower facilities, a main office, and possibly other amenities like a swimming pool, playground, or picnic areas. While this represents a significant initial investment, keep in mind that returns typically range anywhere from 10% up to 20%, making RV parks one of the highest-yielding commercial real estate asset types.
Secondly, you can invest in RV parks by purchasing existing properties and expanding or renovating the current lot. Again, this option may still require significant capital upfront as you renovate the existing amenities. However, with water, electricity, and other amenities already in place, you can begin renting spaces immediately while making other repairs over time.
If you want more detailed information about RV park investing, we discuss the process here.
As mentioned above, RV parks see some of the highest average returns of any commercial real estate asset class, thanks to several factors.
First, RV parks see a steady stream of customers. Before COVID, these parks relied heavily on retirees, seasonal workers, and families traveling the country. However, since the pandemic began, RV parks have only seen their occupancy rates increase, which is likely to continue for the foreseeable future. Even after the pandemic subsides, RV park investors will continue to experience predictable income.
Secondly, RV parks require limited maintenance costs. Each spot typically provides water and electricity for visitors, plus a few amenities such as WiFi, shower facilities, or gathering areas. While it is vital to have exceptional property management on-site to assist visitors, the maintenance costs are substantially lower than you would experience with alternative investments.
Because RV parks are specialized alternative properties, it’s essential to have qualified and experienced property managers on site. While maintenance is relatively limited compared to other asset types, the maintenance issues are specific to RV parks.
Successfully operating an RV park requires a significant time investment. If you choose to manage the property on your own, recognize that issues may arise at any time of the day or night. Consequently, many RV park owners choose instead to hire outside property management teams.
Additionally, many RV parks are seasonal businesses. While some visitors remain year-round – and some consistently return to the property through the year – the bulk of business happens in the summer months or during other holidays. Therefore, owners must financially prepare for slow months.
Manufactured Housing and Mobile Home Communities
Manufactured housing parks have many similarities to RV parks for investors. The most significant difference, of course, is dealing with full-time tenants rather than visitors just passing through. RV parks often have permanent residents, but these tenants don’t make up the bulk of an RV park’s income.
By contrast, manufactured housing parks exist to provide permanent space for manufactured homes. The tenant owns the trailer home itself, while the investor rents the land and provides other amenities to the tenant.
Manufactured housing communities are a hidden gem when it comes to alternative investments. The returns may be lower than with RV parks, but this alternative real estate class is generally reasonably recession-proof.
How to Invest in Mobile Home Communities
The most common strategy for investing in mobile home communities is to buy either a vacant lot to transform into a mobile home community or purchase an existing park. In this case, you would buy both the land and the business and continue renting lots to tenants.
To find available mobile home parks for sale, investors can contact a commercial real estate broker, search on commercial real estate websites, or directly contact park owners. However, working with an experienced commercial real estate broker is the best way to ensure you make the best investment for your portfolio.
There are multiple advantages to investing in alternative real estate like mobile home parks.
First, it’s not a particularly attractive asset type. Therefore, it’s often overlooked by CRE investors. You’ll face less competition from other investors than you would in a traditional asset type like multifamily properties, for instance. However, those turning up their noses at this alternative investment opportunity are truly missing out.
One significant advantage is the limited maintenance required at mobile home parks. Since the tenants own the units themselves, they are therefore responsible for the upkeep of the home. The park owner is only responsible for the maintenance of common areas, pools, and grounds. Additionally, the owner must maintain the sewer and water lines for the property.
Unlike other multifamily investment properties, mobile home parks require minimal property management costs, making them a surprisingly lucrative opportunity.
Mobile homes tend to experience longer occupancy terms than other multifamily investments as well. That’s because it’s an expensive and time-consuming process for the homeowners to move their unit to another location. Therefore, most homeowners stay in one place for many years. That’s great news for investors because they can expect reliable income and limited vacancies.
Finally, investors typically get lower rates on mobile home park loans than RV park loans. And there are surprising tax benefits associated with owning a mobile home park.
Because mobile home parks represent an incredible opportunity for profit, they also generally come with a large price tag. Expect to fork out significant upfront capital.
Additionally, tenants aren’t purchasing mobile homes as prevalently as in years past. Lending options are limited for these buyers. Also, single-family home lending programs make it easier for buyers to purchase homes without leasing the land. Therefore, if a mobile home park does face a vacant spot, it could be hard to fill that space.
Finally, investors must recognize that owning and operating a mobile home park comes with cultural challenges. Those living in these communities might not react well to rent increases or new regulations. It’s important to fully understand what you’re getting yourself into before purchasing a mobile home park.
The storage unit market has historically performed rather well. Even during the economic recession of 2008-2009, storage units saw positive returns.
Thanks to Americans’ love of consumption and capitalism, we have more “stuff” per person than nearly any other nation on earth. Over the past several decades, goods have become more affordable than ever. As e-commerce took hold, it’s now incredibly easy to purchase just about anything from your home computer or mobile device.
As this consumerism exploded, Americans ran out of room to store all of these possessions. As early as the 1960s, we started renting space just for our “stuff,” and the storage unit revolution began.
Today, storage units are a booming industry. For investors, these alternative investments represent an opportunity for significant annual growth. In 2019, the American storage unit industry raked in $38.6 Billion in revenue.
While there are some indications that the Coronavirus pandemic could impact this alternative real estate sector, the industry remains a steady income stream for many investors. The most recent data shows that self-storage has remained steady throughout the pandemic, and any losses have since been erased.
You’ve seen them alongside the highway and in your local community: storage units of varying sizes, all locked securely behind a gate. These individual storage units represent the bulk of the self-storage industry.
More than 9% of all American households currently rent at least one storage unit, at an average of $88 per month per unit. For investors, this means as much as a 41% profit margin – a significant return.
These storage facilities vary significantly in square footage, facility amenities, security, and cost. Newer, high-tech facilities feature climate-controlled units, 24-hour security, and even biometric locks to keep high-value items safe.
The cost of such an investment – and the profit potential – vary greatly depending on the property’s location, condition, and amenities.
Cold storage facilities represent another alternative real estate investment opportunity. Many businesses are scrambling to find cold storage space as e-commerce and grocery delivery services increase.
The COVID-19 pandemic led to a marked increase in contact-free retail purchases, including groceries and other refrigerated goods. Because of this change, businesses are moving from large retail centers to more online-based business models.
However, grocery stores and other foodservice retailers are also stockpiling perishable goods, preparing ahead for future shortages.
Furthermore, pharmaceutical corporations require cold storage for vaccines, medications, and other treatments. While COVID-19 has increased the need for cold storage facilities for this purpose, pharmaceutical companies will always need cold storage, especially as researchers discover new treatments for a myriad of illnesses.
All of this demand leads to an incredible investment opportunity. Demand is currently outpacing supply, leading to a frenzy of building activity. Investors looking to add alternative investments to their commercial real estate portfolios should consider this growing asset type.
While industrial facilities fall firmly under “traditional commercial real estate investing opportunities,” one offshoot should be considered here. As with other storage asset types, there’s a high demand for warehouse space, especially during the pandemic.
Even before COVID-19 hit, brick-and-mortar retail stores floundered as e-commerce increased in popularity. Now, amid the pandemic, more Americans than ever are buying goods online. As a result, businesses are moving away from brick-and-mortar stores and embracing e-commerce models. As such, these businesses need more storage space for their goods, leading to an increase in demand for warehouse space.
In fact, this increase in demand led to a 33% increase in warehouse space rents from 2014-2019.
For investors, warehouse space represents one of the highest returns on investment (ROI) of any commercial real estate class.
How to Invest in Storage Units
Depending on whether you’re considering a traditional storage facility, cold storage space, or warehouse property, you’ll need to consider several factors carefully:
- Location of the property
- Saturation of other similar properties in the area
- Local demand for storage
- Local economic and business trends
- Cap rates for existing properties
Once you’ve determined which storage unit type to purchase, there are several options for finding the ideal property.
First, we recommend contacting our experienced commercial real estate brokerage team. Our dedicated brokers can identify potential properties, work with you to determine whether it’s the best investment for your portfolio, and help you close the deal.
There are a few ways to invest in storage facilities. First, decide whether you want to be an active investor or a passive investor. Some real estate investment trusts (REITs) and other investment funds allow you to purchase a share of these facilities and receive dividends based on performance. We talk about this method more below.
We recommend contacting our experienced commercial real estate brokerage team. Our dedicated brokers can identify potential properties, work with you to determine whether it’s the best investment for your portfolio, and help you close the deal.
However, if you want to actively invest in these alternative investments, you can either purchase land and build from the ground up or purchase an existing facility. The method you choose depends mostly on your available capital, the location, the local market, and necessary renovations. Again, an expert investment advisor can help you determine if a property will be profitable.
There are multiple benefits of self-storage, cold storage, and warehouse investing. First, storage units are one of the most lucrative investment options in the commercial real estate market. While they may be expensive to purchase, the high rates of return are typically worth the sizable initial investment.
Second, storage units require very little overhead and maintenance costs. Whereas other asset types, like residential or retail centers, require costly maintenance and property management services, storage units generally don’t require much beyond some security detail, part-time office staff, and perhaps the occasional maintenance request.
Finally, there is an increasing demand for storage space in America. While COVID-19 has exacerbated this need, it’s likely that the storage sector will remain a profitable investment even after we emerge from the pandemic.
One concern with this alternative real estate class is the possibility of market saturation. Self-storage units have become increasingly popular with investors, and therefore there is a risk of saturation in certain markets. Consequently, it’s important to carefully analyze investment opportunities in your area to determine whether they are lucrative.
Additionally, purchasing or developing a storage center can be extremely costly. Most are owned by real estate trusts or other commercial real estate funds, making it difficult for individual investors to afford such facilities.
The most populous generation in American history – the Baby Boomers – are now senior citizens. As they age, there’s an increasing demand for senior housing, senior nursing facilities, and long-term care centers. In fact, it’s estimated that the number of people aged 75 or older and in need of at least some assistance will triple by 2050.
For investors, these alternative properties represent a significant opportunity for profit. The long-term care and senior housing sector will only grow as medical advances mean longer lives. Therefore, experts agree that senior housing will be a source of significant financial returns for commercial real estate investors.
Senior housing covers an array of alternative real estate types. It’s essentially a mix of retail, hospitality, and medical sectors working together to care for older adults. Senior housing investments might mean a multifamily complex, such as senior-only apartments. Or, senior housing investments might look like assisted living facilities or long-term care facilities. There are also progressive care properties where adults can essentially live independently as long as possible before being moved to greater medical care as needed.
Each of these property types has its own set of advantages and disadvantages. Still, most commercial real estate investing experts agree that senior housing and long-term care is an underrealized asset type rich with earning potential.
How to Invest in Senior Housing
The most popular way to invest in long-term care facilities and senior nursing homes is through a real estate investment trust (REIT), which we discuss in more detail below. Essentially, this allows a wide variety of investors to purchase shares of the CRE property. Even lower-net-worth investors can still invest in this lucrative property type and receive portions of the profits.
However, high-net-worth investors might choose to purchase land and build age-restricted multifamily homes, purchase an existing community, or invest in individual multifamily units. COVID-19 has caused many seniors to rethink their living arrangements, choosing to age in place in their homes rather than move to nursing homes or assisted living communities. In part, many seniors are choosing to forego assisted living because of the dramatic increase in COVID-19 cases in nursing homes.
While this trend could shift post-COVID, these facilities will likely have to undergo costly changes to address the current pandemic. Therefore, some investors are choosing to invest in senior apartments or other multifamily properties instead.
Overall, the senior housing sector shows a 10.5% annual return over a 10-year period. Those returns far outpace other types of residential returns, which average about 6% according to the same survey. And with each generation living longer, senior housing and assisted living facilities will only become more critical in the future.
This alternative real estate class also promises reliable returns with a steady income. Because these facilities are in demand, whether the economy is booming or in a recession, investors are unlikely to experience significant changes during market cycles.
High demand means near-constant high occupancy rates.
Currently, COVID-19 is impacting senior nursing facilities, particularly large-capacity properties. Many seniors choose care facilities, move in with family, or live independently due to the extreme outbreaks in these communities.
However, as the pandemic subsides, experts expect occupancy rates to rise again. Still, these facilities will likely need costly repairs and renovations to address problems exposed by the virus.
Additionally, property management, maintenance, and other staffing costs represent a significant financial burden. These facilities require a great deal of upkeep as residents often cannot perform maintenance duties safely. Furthermore, property management is necessary to ensure properties meet local and national standards.
Medical Office Buildings
Medical offices and other medical commercial real estate were incredibly popular with investors prior to the pandemic. The properties included small clinics, urgent care centers, medical office buildings, and other medically-associated real estate. Pre-COVID, the medical office sector remained solid: investment sales reached $12.4 Billion in 2018 and $11.2 Billion in 2019.
In large part, this boom in medical office building investments began in 2010 after the creation of the Affordable Care Act. Under this plan, some 20 million previously uninsured Americans received health insurance, dramatically increasing the need for medical facilities nationwide.
However, with the pandemic came a drastic decline in revenue for medical facilities. Amid fears of the virus, most medical facilities closed their doors to all but essential appointments. Some were closed entirely for weeks or months. This activity sent an unprecedented ripple through the medical office investment sector, leading to a nearly 50% decrease in medical office building sales in Q2 of 2020. However, even though sales volumes fell, prices for those properties remained steady.
As of this publication, most office buildings are back up to 90-95% of their operating capacity, according to NREI Online. Therefore, investment experts expect to see medical office building sales and returns level out and continue to rise.
How To Invest in Medical Commercial Real Estate Properties
Because of their large scale and specialized needs, most medical office buildings require an incredible amount of capital. Therefore, most individual investors go through a real estate investment trust (REIT) or an exchange-traded fund (ETF). We outline these processes in more detail below.
High-net-worth investors may be able to invest via a joint venture, working with other investors or firms to purchase a medical office property.
Even with a marked decline in sales early on in the pandemic, average returns remain steady. Medical offices, hospitals, urgent care clinics, and other health centers are a vital part of American life. Even though many of us delayed elective procedures due to the pandemic, necessary medical procedures cannot wait. There will always be a need for medical care, and therefore investors can count on this asset type to perform relatively steadily over time.
Furthermore, as Americans continue to age – and live longer lives – we will need greater access to medical care. Therefore, medical office buildings are expected to increase in popularity among commercial real estate investors.
Additionally, now may be the best time to invest in a medical office building. As prices drop due to the pandemic and slowdowns in earnings, many owners are ready to sell, and it’s a buyer’s market.
Medical offices are a specialized alternative property. Therefore, vacancies can take longer to fill. Amid the pandemic, some medical offices have cut back their hours of operation, causing some practitioners to consider downsizing. You must consider the possibility that we could see vacancies in the near future due to this economic fallout.
Also, medical offices often require more maintenance and renovation than other commercial real estate properties. Due to the technological nature of these properties, owners and property managers may be expected to upgrade their properties to suit incoming tenants.
Student housing is one of the most underutilized alternative investments. These properties range from campus-run apartment complexes to off-campus multifamily builds to duplexes. Student housing investments are a wonderful option for the beginning investor who wants to diversify their portfolio.
Even during a pandemic – when many on-campus dormitories are closed to students – privately-owned student housing performs well.
Most student housing properties see occupancy rates above 90% every year, giving the owner a stable and reliable income. And as college enrollment numbers continue to increase, investors can only expect to see occupancy rates, demand, and rents rise in turn.
How to Invest In Student Housing Real Estate
Because of the variation in student housing types, there are equally as varied means of investing in these alternative properties.
Individual investors often purchase a single unit (like a condo or townhome) near a college campus. Sometimes, the investors are parents who purchase a property as a living space for their student. This is an excellent strategy that saves money on housing costs while also offering the potential to generate income each year. When the student graduates, parents can either sell the property or continue to rent to college students in the future.
Other investors choose to invest in multiple units, or to invest in large-scale student housing projects. These might include REITs or ETFs that fund new construction or complete renovation of an existing building. Joint ventures are also a common way to fund these alternative investments.
You can learn more about student housing investments in this in-depth article.
College enrollment is at an all-time high. Therefore, there are more students than there are places to live. For investors, that is a recipe for success. There are always students coming and going on a college campus, so investors can count on nearly-constant occupancy.
Furthermore, many students still rely on their parents to cover housing expenses. Property owners can typically expect rent to be paid in full and on time because it’s the parents – not the students – who sign the lease and cover the bill.
Unlike other multifamily rentals, finding new tenants is almost effortless. Property owners and property managers simply have to advertise around campus or ask their current tenants to spread the word. There’s always a student in need of an apartment close to campus.
Finally, owners can expect slightly higher cap rates near a college campus than they would in another location. Rates are typically 0.5% to 0.75% higher for student housing properties, making the returns on these investments more lucrative.
Of course, even with all these benefits, you are still renting to college students. Even the most responsible of them are young and inexperienced, so you can likely expect more frequent maintenance calls, noise complaints, and other such issues.
Additionally, plan on cleaning and repair costs to be higher when a tenant leaves. Some student housing property owners charge a higher security deposit to offset these costs, or you can factor that inevitability into your monthly rent.
Other Alternative Real Estate Investments
The aforementioned are certainly not a comprehensive list of alternative real estate properties. There are many other alternative investment options, including:
- Raw land
- Data centers
- Co-working offices
- Single-family rental properties
To learn more about these or other alternative real estate investment opportunities, contact one of our experienced commercial real estate brokers today.
Ways to Purchase Alternative Properties for Every Investor
As we mentioned above, there are many ways for investors of nearly any income to invest in commercial real estate these days. You don’t have to be a high-net-worth investor to stake a claim in these alternative properties.
Various methods now exist to help both beginning and experienced investors profit off of the commercial real estate industry.
For a more detailed look at ways to invest in commercial real estate, visit our detailed article here.
For those with significant capital, investing in alternative properties directly provides the best access to returns. While direct investments also mean being completely financially responsible for operating costs, maintenance costs, and other expenses, it also means receiving the bulk of the profits.
Many lenders require at least 25% down on commercial or rental properties, so direct investors must consider the upfront costs and determine whether or not this is the best option.
Real Estate Investment Trusts (REITs) are a great way to make commercial real estate investments available to every investor. These trusts allow investors to purchase shares of a property rather than financing the entire property outright.
With a REIT, shareholders aren’t responsible for expenses related to leasing, property management, or any other daily operations of a property.
Essentially, a larger real estate developer or corporation purchases the property and then sells shares of that property to investors. The returns are distributed based on the property’s performance and how many shares each investor holds.
Many investors choose REITs because of their simplicity. With a REIT, shareholders aren’t responsible for expenses related to leasing, property management, or any other daily operations of a property.
ETFs and Other Traded Stocks
Exchange-Traded Funds, or ETFs, are stocks or mutual funds traded and handled by a financial advisor. Similar to REITs, investors buy shares of the ETF and therefore have little to no involvement in the property’s operations or business decisions.
Many ETFs and other traded stocks include some commercial real estate holdings, but contain shares in other businesses and financial sectors.
Because many of these alternative investments require a significant amount of capital, most individual investors cannot do it alone. Joint ventures, however, allow multiple investors or investment groups to join forces and fund a project.
In a joint venture, two or more entities work together to purchase a real estate property, renovate the property if needed, and manage the property. The profits are then split according to the agreement made between all parties.
Crowdfunding is a more recent development in commercial real estate investing. Crowdfunding has been around for a while, collecting funds from a variety of sources to finance individual or business projects.
Just as GoFundMe or Kickstarter helps small businesses raise funds after a disaster or when a new product idea is in the works, CRE crowdfunding sources are also springing up online. This method came about after the 2012 JOBS Act but is gaining in popularity.
The method opens up commercial real estate investing to nearly anyone, sometimes with as little as a $500 investment. Then, like with REITs or other methods, investors receive dividends or shares of the profits based on their initial contributions.
Real Estate Investing: Looking Towards 2021
Undoubtedly, it’s been an unusual year for commercial real estate investing. Whether traditional commercial properties or alternative investments, the COVID-19 pandemic rewrote the book on real estate in 2020.
In Q2, the American economy saw the worst economic decline in post-World War history. Unemployment reached unprecedented levels. Businesses shuttered their doors as retail activity came to a halt in March and April.
Throughout the summer, some areas of the country began to reopen. Still, however, it is anything but business as usual. While some parts of the economy have begun to rebound, there is still some uncertainty surrounding the future. What can investors expect in Q4 and as we head into the New Year?
Traditional CRE Properties: Future Projections
Despite the uncertainty, many sectors of the real estate industry are thriving. Residential real estate, for instance, is seeing incredible growth, thanks in large part to incredibly low interest rates and more people moving out of the cities. Across commercial real estate investment classes, the results are more mixed.
Multifamily properties, for instance, have remained fairly steady. The industrial sector is booming thanks to increased demand for warehouse, storage, and manufacturing facilities. But office buildings and retail have taken a significant hit during the pandemic.
For our most recent update on commercial real estate heading into the final months of 2020, click here.
Alternative Properties: Future Projections
Among alternative real estate properties, future projections are in line with those of more traditional CRE properties. That is, some face a bright future and some are more uncertain.
Amid travel restrictions, more Americans are relying on recreational vehicles – RVs – as a way to get around. With so many avoiding airlines, hotels, or other means of travel, the RV has seen an incredible resurgence throughout the country.
In August alone, sales of new RVs increased more than 17% year over year. And RV dealers across the nation are selling out of them as fast and manufacturers can build them.
All that said, RV parks are also enjoying record profits. Even in a non-COVID year, RV parks can yield a 10-20% return on investment. However, with the uptick in RV sales seemingly unending, it’s likely those returns could be even larger this year.
Fortunately for investors, the rise of RV-ing could mean years of high returns are ahead. While there are many commercial real estate investors reeling from this pandemic, RV park investors are celebrating. And while we can’t know for certain whether the snowbirds will return to RV parks in warmer climates, the booming summer and fall seasons will hopefully be enough to hold these parks over.
Mobile Home Communities
Initial projections seem to suggest that land lease properties, like mobile home communities, are less likely to fail than other commercial properties during a crisis. That seems to be the case thus far into the pandemic.
Early reports showed investors receiving tenant rents without any disruption. In the second quarter, real estate investors bought or sold more than $800 million in mobile home park property. That’s a 23% increase over the same period in 2019.
It seems commercial investors, some nervous about other asset types, are drawn to the steady and predictable income these alternative properties provide.
For now, the future looks promising for mobile home community investment opportunities.
According to the most recent data, it seems the self-storage sector is rebounding after an initial decline. At the end of Q2, national occupancy was at 92.2% for self-storage facilities. And though rents are down from the same time period last year, it looks as if those rents are stabilizing. Rents may even increase next year as demand for storage space increases.
The Coronavirus pandemic hit seniors particularly hard. Many senior living communities saw disastrous outbreaks, with sometimes horrific and tragic outcomes.
As such, investors and developers seem to be backing away from this asset type for the time being. But while there may be a short-term downturn in senior housing investment, experts still expect senior housing to be one of the leading alternative investments in the coming years.
Medical offices, hospitals, and other medical care centers were overwhelmed at the beginning of the pandemic. Yet even as many medical centers shut down to all but necessary medical procedures, providers still found a way to maintain income.
Telehealth became a new way of life for many providers and patients, allowing access to healthcare without the risk of COVID exposure. Because of this adaptability, most medical office building owners have reported very few disruption in tenant payments.
Student housing is another alternative real estate type experiencing uncertainty because of COVID-19. Some campuses didn’t open for in-person learning at all this fall, opting instead for completely online courses. Other campuses approved hybrid options, with some students living on campus while others learned remotely.
About 25% of American colleges reported allowing courses either mostly in-person or entirely in person. Of course, many college towns reported an almost immediate uptick in Coronavirus cases as students returned to campus.
We don’t yet know what student housing will look like in 2021. Without a vaccine or proven COVID-19 treatment option, there may be fewer students on campus in the spring and fall 2021 semesters.
The student housing market has slowed significantly as a result. Some investors worry that online learning will become commonplace, with more students choosing to save money by living at home rather than renting apartments near campus. In that case, it could be some time before the market bounces back.
Is Now the Right Time for Alternative Real Estate Investments?
If you’re considering selling or buying commercial real estate, let one of our experienced investment experts help you make the right decision for your financial future. Contact us today to learn more about your options.
During a time when nothing is certain, it’s hard to say which alternative properties are going to be lucrative investments long-term. However, nothing is ever guaranteed in commercial real estate investing.
Now might be the time to offload some of your assets and move into safer, more reliable properties. However, your best option is to consult with leading industry experts who can review your portfolio and help you create a plan to weather this storm.
If you’re considering selling or buying commercial real estate, let one of our experienced investment experts help you make the right decision for your financial future. Contact us today to learn more about your options.
Alternative Real Estate and Commercial Property Management
Finally, if you own an alternative real estate property and need high-quality property management services, our knowledgeable and dedicated staff are ready to help.
At CXRE, we offer a variety of commercial real estate services, from property management to CRE sales to construction and renovation project management. Our team will go above and beyond to protect your investment.
No matter what property type you own, we can ensure you get the maximum returns on your investment. We even manage non-traded REITs, helping investors maximize their financial performance.
To learn more about our services, or to find out more about alternative investments in your area, please contact us.