Exploring 4 Alternative Commercial Real Estate Asset Classes
GP How-tos
It’s Time to Explore Opportunities Beyond the Traditional
For years, general partners (GPs), deal sponsors, and syndicators have focused on the more traditional commercial real estate asset classes. These include office space, retail, industrial, multi-family housing, hospitality, and mixed-use developments. As we all know, many of these classes are facing significant challenges, and for some classes such as office space, those challenges are expected to continue increasing.
Fortunately, there are many other commercial real estate asset classes outside of these traditional avenues to consider. With the industry overall continuing to face more hurdles, the need to strengthen investor confidence and continue driving value persists — identifying, pursuing, and growing opportunities in these asset classes may be worth the time and effort, particularly for smaller firms looking to expand their portfolios.
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4 Commercial Real Estate Classes to Consider — and Why
1. Distressed Properties
The number of distressed properties has been growing nationwide for some time. As of Q1-23, more than $64 billion in assets qualified as distressed, and more than twice that were approaching distressed status. Despite these challenges, distressed properties have seen more interest as a viable investment strategy. There are risks to be sure, but with the right approach, GPs and investors can generate real cash flow from this commercial real estate asset class.
2. Manufactured Housing
Manufactured housing as a commercial real estate asset class has been seeing more and more interest due to this property type’s ability to withstand economic downturns. Additionally, the need for affordable housing has been rising nationwide — leading many to look to this class for alternative solutions and providing park owners that lease the land an opportunity to generate attractive, stable returns.
3. Student Housing
Along with manufactured housing, student housing near college campuses has seen a boom recently due to strong demand. And despite rising mortgage rates, industry data shows that property sales for student housing in 2022 reached a historic high of nearly $23 billion. GPs and investors exploring alternative commercial real estate asset classes, particularly those in academic communities, should consider this avenue to drive value. While this class brings some complexities due to tenant cycles and maintenance, it may be a worthy addition to a growth-focused portfolio.
4. Build-to-Rent
Build-to-rent projects are thriving due to housing inventory shortages, rising home costs, and the high rate environment. With more people looking to rent, build-to-rent communities add yet another opportunity for GPs and their investors. These homes typically lease up quickly because they resemble single-family residences and have comparable rates — making them an attractive option.
What’s the Key to Success with Alternative Commercial Real Estate Assets?
Investment management. As a GP, syndicator, or deal sponsor, understanding where an opportunity in any of these commercial real estate classes stands at any one time is critical. As you’re already aware, there are many steps and tasks to oversee — from sourcing new deals and navigating fundraising to communicating with partners, reporting on progress over time, and distributing payments to investors.
Being able to seamlessly navigate these tasks, produce the required information, keep investors informed, and reduce administrative workloads on your team helps to accelerate time to impact. Your team will be able to focus on doing what it does best: closing deals and building relationships. All the while, the essential steps needed to make that happen are being handled either automatically or in a matter of clicks.
That’s what you get with Covercy: a complete commercial real estate investment management solution, with the addition of banking capabilities to further enhance your work, protect your assets, and generate additional revenue.
Learn more about Covercy and how it can help you achieve success with these asset classes and others. Sign up for a private demo today.
