Like any other industry, commercial real estate is cyclical in terms of what has been built, what's currently being built, and what will eventually be built. Take Denver for instance – it’s a unique city in terms of proximity, growth, and industry. You have people who move here to be close to the mountains. Others who love the sheer amount of activities and amenities the city has to offer. It’s long been an energy, mining, and agriculture center and now is becoming a tech and financial hub where people are moving to in droves.
Commercial real estate developers no doubt recognized the rate of population growth a few years ago and pounced on the opportunity to build multi-family homes. This trend continues to explode – take a look around the city and you will see cranes hover over soon-to-be-finished apartment complexes. While the demand for these complexes exists based on 100,000 people moving to the area each year, look at Zillow, RedFin, or Craigslist, and you can’t help but notice these enormous complexes offering big move-in specials. It almost feels like these complexes have been or are being over-built. If that’s the case, what industries should you focus on in 2018 and beyond? Below we’ll outline a few commercial real estate property types to keep an eye on for the coming years.
- Senior Care Facilities – We’re currently in the midst of tens of thousands of baby boomers retiring each month. Just because people are turning 65 doesn’t mean they’ll automatically need to go into a senior care facility, correct? While that is true, developers have already taken notice, and are beginning to build facilities across the nation. One segment of senior care that continues to fall behind, is the amount of higher-end facilities. Because of this, we’ve partnered with Balfour Senior Care to help facilitate these needs by building two senior care facilities near Denver, and one in Ann Arbor, Michigan. These are not “old folk homes” – these are truly state-of-the-art transitional facilities that lend themselves to the active adult looking for independent living and allow them to transition into higher levels of service over time. They offer things like farm-to-table dining, chauffeur services to help seniors get around town, wine tasting, aerobics classes, and movie nights. 10,000,000 people are expected to retire in the coming decade and they are demanding more quality of life options than ever before.
- Self-storage – This might not be the sexiest investment in world, however it is one of the more efficient. Self-storage has the ability to thrive in both up and down markets. If the economy is going well, consumers amass more goods and they need a place to put them, while businesses need extra space for inventory and equipment. If things are going poorly, consumers and businesses need to downsize and need a place to store their inventory, equipment, toys, keepsakes, and household goods.
Self-storage has the ability to adapt to nearly any land site; it can be in L shapes, rectangles, triangles etc.., it can be located in less expensive parts of town, otherwise less desirable plots of land which helps the bottom line. It doesn’t need a beautiful view – it simply needs to be convenient. But, possibly its best attribute is they have low operating and maintenance cost.
Here's one example of how self-storage can adapt and take advantage of less desirable locations: Northstar recently began converting a 5-story suburban office in to self-storage. For an office use, this location had fallen out of favor, but with a location on a major road, near a highway, and a large parking lot (for outside storage) this asset was a perfect candidate for self-storage.
- Industrial – Maybe the biggest industry to benefit from e-commerce other delivery services like the USPS and FedEx, has been the industrial real estate market; brick and mortar retail pain has been industrial's gain. From big box retail and small town main street, to malls and grocery anchored retail, they are all undergoing a massive onslaught of competition from e-commerce. Interestingly, what e-commerce needs is industrial for inventory, distribution, maintenance and repair, not to mention the call centers that also inhabit industrial space. In the years to come with autonomous delivery, we also expect centrally located industrial to fare well. Similar to self-storage, industrial properties can take advantage of less desirable locations, are simple to construct and have low operating cost.
Northstar recently purchased land in Broomfield, Colorado (between Boulder and Denver), and we’re now in the midst of building a 315,000 SF of industrial warehouse facilities. In the end, we’re excited about the prospect to help provide jobs to area employees.
We’re not hiding our self-promotion of these three industries. Using Colorado again as an example, the state is currently ranked as the best state economy in the US, and as mentioned above, more than 100,000 people moved to front range this last year. Even with all the growth, Colorado’s unemployment is only around 2%. Population growth and low unemployment is driving increased investment and job growth. The weather is ideal, the people are friendly, and being next to the Rockies is picturesque. We’ve made significant investments in senior care, self-storage, and industrial. We’ve done so because we have a team of 45 employees who work diligently to study markets, acquisition, and development. We believe in the investments we share with our friends, family and investors and we hope you’ll join us in helping the community grow and doing well along the way.
This post was written by Northstar's Director of Equity, Danny Mulcahy. If you'd like to see what investment opportunities Northstar currently has open, please visit our investor portal at: https://invest.northstarcommercialpartners.com/