Rising Interest Rates, Inflation Lead Investors to Reassess Which CRE Assets to Pursue
WealthManagement.com Features Lee & Associates New York City's Ben Tapper
Rising interest rates, inflation and fears of a recession are starting to change the calculations of how to get the best returns for commercial real estate investors. Should they continue to favor multifamily and industrial assets, which have served them well through the pandemic disruption? Or switch to higher risk, but higher yield investments? It looks like the best approach might be combining the two strategies.
Ben Tapper, a senior managing director and director of the national investment services group with Lee & Associates, says any outlook needs to be broken down by region. In some parts of the country, rent regulations make multifamily assets less desirable. The area’s job and population growth trends also make a difference, Tapper adds.
There are other asset types that are attractive in a rising interest rate and inflationary environment, according to Tapper, but a lot of that has to do “with your acquisition basis.”
In addition, properties that require greater supporting infrastructure and carry higher replacement costs make for more desirable investments in today’s environment, he notes. One example is the medical office sector, where it’s expensive to build out the necessary infrastructure such as HVAC, X-ray-proof walls and MRI machines.
“Things like that are more cost-intensive to put into a building, creating a greater stickiness in the tenant, greater predictability and greater stability,” Tapper says. “I think in a rising interest rate and inflationary environment that’s what a lot of investors are seeking.”
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