Value-add opportunities are the holy grail of commercial real estate investing. After a turbulent six years, the landscape has changed, and good bets are hard to find. But there are a few strategies investors in commercial, industrial or residential property can employ. Here are three that we are seeing in the Greater Boston area.
1.Look farther away. Distressed/value-add assets for the most part are not occurring within Route 128 unless they were overleveraged. The market has rebounded so well in Boston, Cambridge and the inner suburbs in terms of the rental market and desirability that any issues are easily worked out. So most value-add opportunities right now are outside Route 128, closer to Route 495. However, there are always exceptions. One is the Watertown Technology Center at 125 Walnut Street, a 122,000 square-foot office/ R&D building near the Arsenal Mall. This value add opportunity offer significant upside potential, through new tenant lease up or redevelopment
2.Find the truly distressed. While many bank-owned properties have been picked over, there are still some worth looking at – especially if you want to acquire something other than an empty building. Of course, the process is still choppy and it can take a patient investor to work the details out. One local example is a former Zion Bank deal at 661 Pleasant Street in Norwood. The 60,000-square-foot mixed-use property had warehouse vacancy that could be leased up and the office space was below market. The property is being actively marketed for sale and lease.
3.Don’t overlook the blue chip locations. Every once in a while a value-add gem comes on the market in a great location. To wit: a lovely century-old building at 135 Beacon Street just came on the market – we call this “generational real estate.” A long-term owner has decided it’s the right time to sell this 10-unit apartment building (with two parking spaces) that needs a slight rehab; the rents are below market. It’s a great location that has stood the test of time. Another example is One Lewis Wharf. While this is a small (16,000-square-foot) building on the Boston waterfront with boat slips, this property could not be duplicated today. While the undisclosed price is high, the property is still value-add because there are releasing opportunities as well as underutilized boat slip income. Meanwhile, there is a lot of expensive development nearby.
We like to say you can overpay anywhere. But with enough sleuthing, you can also find great deals anywhere, too.