By Andy Litvak, Hartmans Simons partner
Note: This post originally appeared on the Atlanta Business Chronicle's Real Talk blog.
The last several years have proven to be an extremely volatile period for investors and owners of commercial real estate properties.
While real estate investment has never been for the faint of heart, thoroughly vetted and calculated investment strategies have typically proven to produce strong yields (irrespective of asset class). Given the nature of these tumultuous times, I have observed many of my clients gravitate toward far ends of the investment spectrum.
By way of example, many have employed a "carpe diem" attitude and have attempted to seize the day by capturing perceived home run opportunities and returns in the distressed property arena. These distressed asset strategies have been the topic of much discussion of late, and there are certainly no shortage of hungry investors seeking to acquire REO or so-called "value" add properties, purchase notes at significant discounts or otherwise eager to recapitalize underfunded partnerships by injecting fresh equity.
On the other side of the spectrum, however, there are legions of investors seeking stable properties which produce consistent, low risk dividends. Many of these buyers are institutional players (REITS, life companies and pension funds), and their individual investors and annuitants are craving "coupon-clipper" deals producing reliable and consistent income streams. Along these lines, net-leased properties with corporate or other high credit tenants and grocery anchored retail centers have proven to be very attractive.
The strong demand for these stable properties has resulted in bidding wars and cap rate compression. Although, perhaps the new leading contenders in this category are "MOB's" - medical office buildings.
Long before the current real estate downturn, MOB's were viewed as recession resistant properties. The strength and credit of the physician practice group tenants, historically low turnover and consistent patient base requiring medical services lends to an inherently strong degree of stability. Now, fast forward and infuse equal doses of the ever-evolving world of health care legislation reform, new trends in practice group and hospital consolidation and other anticipated changes in health care delivery models — and you have all the ingredients to attract major interest in MOB investment by sophisticated investors.