Due to the rising prices of commercial real estate in major cities, investors in California may be more interested in properties that are located in medium-sized markets like San Jose. Prominent commercial real estate investment firms have started to look outside of places like New York, San Francisco and Boston because the prices are getting so high.
Commercial properties in smaller cities may provide an investor with a greater potential to earn a profit. Investors are now looking for real estate markets where they can still get properties for cheap while taking advantage of rising rent prices. Some of the cities that are expected to experience rent growth over the next couple years include San Jose, Philadelphia, Columbus, Dallas and Boston. However, Boston's capitalization rate of 4.5-5.75 percent makes properties in the city less desirable for investors.
ABS Partners Real Estate and Acre Valley Real Estate Capital's recent purchase of the Datran Center in Miami is evidence that major investors are shifting their focus to medium-sized cities. The $150 million office complex has a cap rate around 6 percent. In comparison, Class A stabilized properties in New York have cap rates ranging from 4 to 4.5 percent, according to a survey by the CBRE Group. The same two firms that purchased the Datran Center also joined forces to buy several properties in North Carolina last year.
A commercial real estate investor may want to speak to an attorney about new investment opportunities in small- and medium-sized cities. If an investor is thinking about investing in a type of property that they have not worked with before, an attorney might be able to guide them through the process.