I want to dig in a little more on what you need to think about when surveying a market as a real estate investor. Clearly, the most important part is getting a read on the direction and speed of expansion. And whether it exists at all.
Last week, I was on the road performing such a task. I will leave out names in order to ensure my continued anonymity, but let's just say I was in the periphery of a large U.S. market that has some unconstrained features and a below-trend growth forecast overall. Sounds like a bad start, but it doesn't mean pockets might not exist, and I was there to find out.
The niche in this case was an area that represents the next node out from the already well-developed suburban sub-markets for the city. My read was that the particular location in question has some possibilities, but at the end of the day it would come down to pricing. In other words, while the market seemed to have some interesting retail popping up, the particular property in question was not in the ideal location within the submarket (meaning that its rents should probably be a little bit lower than its competitors, which they were) and the plan of attack, if purchased, should not be to dump money into a "value-add" with expectations of huge rent bumps. Simply put, it was a property in a potentially overlooked area that could be had on a good price per unit basis, and the focus upon taking ownership would be to deal with deferred maintenance issues over anything else. The spread in rents with its competitors would shrink somewhat, and then you could hold the property with the belief that downside risk was mitigated by a good entry point.
So, let's circle back to my original focus. The market is okay with some positive pressure points showing up. But, as we don't expect the larger MSA to have huge upside, caution and restraint must be exercised. Again, the strategy for the deal is different than one where population and job growth is expected to be outsized. And you can only figure these things out on the ground.
Enough for now.
