The CRE Advantage

Private Investors Better Positioned to
Outperform Through Active Management 

• Very few investment options allow investors to play an active role in shaping their assets’ performance.
• Unlike stocks, bonds, or commodities, CRE enables direct value creation through hands-on management.
• Investors are increasingly focused on operational strategies, as deal underwriting has become more challenging in the current market where the average borrowing rate on a property exceeds mid-5 percent. 
• Elevated inflation has made expense management a central component of investment performance. 
• Since the end of 2022, construction labor costs have risen by 15.6 percent while material costs have increased by 11.3 percent, requiring more targeted capital improvements.
• Insurance expenses remain elevated, up 26.4 percent since 2022 despite moderating from peak levels, further pressuring operating margins.
•  In this environment, experienced investors are prioritizing efficiency gains to offset rising costs and protect returns. 

Real estate performance across cycles. Outcomes vary across periods of expansion and contraction, requiring strategic adjustments to evolving demand patterns and capital availability. 

• At times, the market outperforms, with strong demand and capital inflows simultaneously driving occupancy and rent growth as well as asset appreciation.
• Between 2019 and 2022, apartment values rose 43.9 percent, industrial assets by 55.3 percent, and self-storage properties by 63 percent, highlighting the strength of recent expansionary conditions.
• Conversely, there are periods where demand softens, and capital availability declines, making profitable operations more difficult to achieve.
• The current environment represents an intermediate phase, in which acquisition opportunities exist but require disciplined execution to realize full value. 

Private investors hold the competitive edge. Hands-on, locally focused investors can create the most value by leveraging operational expertise and uncovering overlooked opportunities.

• In the current investment climate, investors who actively manage assets and rigorously evaluate opportunities are better positioned to outperform.
• Periods requiring operational discipline tend to favor experienced, hands-on operators.
• Private investors have dominated trade activity, accounting for 55 to 59 percent of commercial transactions over $2.5 million since 2022.
• Limited availability of debt capital has contributed to this trend, with lenders favoring smaller loan sizes.
• Their ability to identify overlooked assets and execute targeted improvements provides a competitive advantage.
• Flexibility and precision enable these investors to tailor strategies to the unique characteristics of individual properties.  

* Transactions greater than $2.5 million **T-12 ended March | Sources: Marcus & Millichap
Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Real Capital Analytics;
RealPage, Inc.