Dave Codrea, Greenleaf Capital Partners‘ Chief Executive Officer, joins America’s Commercial Real Estate Show to discuss strategies and risks in various commercial property asset classes at this point in the cycle. He discusses a preference for single tenant retail investment properties, noting that they are simpler to underwrite. They discuss market turmoil, but as potential opportunities. Discussions continue into office, industrial, and more specifically within office properties, medical offices.
Key Takeaways:
1. Focus on Single Story Assets:
Dave Codrea emphasizes the importance of single-story assets in Greenleaf Capital Partners’ strategy. The rationale behind this preference is the operational familiarity and the ability to reduce risks associated with such properties. The flexibility to convert them to different uses, such as Flex or Warehouse, adds to the appeal.
2. Office Properties and Conversions:
Despite the prevailing notion that office properties are facing challenges, Codrea shares insights into the market dynamics. Greenleaf Capital Partners actively engages in the conversion of office spaces, particularly single-story structures. The approach involves breaking down larger buildings into smaller, more manageable suites to meet the increasing demand for adaptable spaces.
3. Retail Success and Single Tenant Net Lease:
The discussion touches on the success of retail properties, with Codrea highlighting the significance of strong, well-run organizations as tenants. The preference leans towards single-tenant retail, providing easier underwriting and lending processes. The stability of single tenant net lease assets during commercial real estate downturns is also acknowledged.
4. Industrial Sector’s Strength:
The industrial sector continues to be a hot market, driven by strong demand. Greenleaf Capital Partners focuses on smaller industrial assets due to limitations in building large industrial properties close to urban areas. The scarcity of industrial space near cities contributes to high occupancy rates and rising rents.
5. Value-Add Approach:
Greenleaf Capital Partners specializes in value-added investments, focusing on the timing of project execution. Codrea emphasizes the importance of expediency in completing value-add projects, particularly in the post-COVID era where delays, especially in obtaining mechanical equipment, can impact project outcomes.
6. Medical Office Buildings:
The attractiveness of medical office buildings is discussed, with Codrea highlighting a successful run in 2021. The focus is on securing favorable debt terms and long-term leases with strong medical tenants. The current challenge lies in the pricing of medical assets, which has become less favorable for investors.
7. Government-Backed Tenants:
Properties with government-backed tenants, including state and federal entities, are viewed as safe, cash-flow-driven investments. While the equity multiple opportunities may be limited, the stability of government-backed leases is considered a reliable source of long-term income.
Conclusion:
Dave Codrea provides valuable insights into the dynamic landscape of commercial real estate, emphasizing the importance of strategic asset allocation, risk assessment, and a focus on value-added opportunities. The conversation sheds light on the resilience of certain property types and the adaptability required to navigate the evolving market conditions. Investors and industry professionals can glean valuable perspectives from this discussion to inform their strategies in the ever-changing commercial real estate environment.