Types of investment properties
The following are examples of the types of properties that a commercial real estate income fund portfolio could invest in:
Single Family Home – Rehabilitation. ‘Single-family’ means that the building is occupied by just one household, and consists of just one dwelling unit. Commercial real estate income funds can lend money to developers who will refurbish and/or add square footage to single family houses, increasing their value in the process. The degree of rehabilitation can vary from a superficial remodelling to a complete tear-down and rebuild.
Commercial Real Estate Funds may also lends funds to developers who will construct new single family residences. In some jurisdictions allowances are made for basements or mother-in-law suites without changing the description from “single family”. Value is created from the increase in value of the land after the property has been built. New homes constructed on urban in-fill land create valuable properties in areas of high demand.
Multifamily residential (also known as multidwelling unit or MDU) is a classification of housing where multiple separate housing units for residential inhabitants are contained within one building or several buildings within one complex. A common form is an apartment building. Funds can lend to developers for new construction or refurbishment of multifamily units.
Sometimes units in a multifamily residential building are condominiums, where typically the units are owned individually rather than leased from a single apartment building owner. Funds may lend money to developers who refurbish existing multi-family units, or construct new developments. These units may also be mixed-use, where there may be retail units that form part of a condominium project.
Repurposing Existing Buildings. Older buildings, which may have long outlived their initial usefulness, can be repurposed into places that will have meaning in that community’s future. Rather than building new, updating anything from defunct car dealerships to shuttered factories can make for a more authentic commercial district. The value of the property can be significantly increased by changing its usage type from, say, industrial to residential.
The Commercial Building Construction industry has benefited from an increased demand for office space since 2012. In the coming years, corporate profit is anticipated to increase, indicating a healthy and dynamic business sector. Commercial Real Estate Income Funds can lend to developers that construct new office developments, as well as refurbishing existing developments that can increase the value and rental yield.
Commercial real estate is made up of a number of market segments, and a significant one is the hospitality sector – hotels, motels, resorts, and other tourist or business accommodations. Commercial Real Estate Income Funds may lend to companies that are active in the hospitality sector. Much-improved demand, along with a projected shortfall in supply, make it an interesting play on future economic recovery.
The student housing market has come of age and is no longer a specialist or alternative investment class. Record levels of institutional investor activity are testament to its potential as a mainstream real estate asset. Commercial Real Estate Income Funds may invest in student accommodation properties that provide opportunities for high yield and capital appreciation.
As more residents head into retirement, the need for health care services and facilities is likely to increase. Real estate investment in properties like senior assisted living facilities is an emerging real estate sector. Commercial Real Estate IncomeFunds can invest in new build as well as refurbishment/repurposing projects to take advantage of the increasing market demand.