The challenges of real estate often stem from forces outside the control of the investor. Fortunately, knowing what those forces are and how to evaluate them will help you make better decisions about how and where to allocate your investments for a reliable and profitable return.
That’s why it’s particularly interesting to consider that the most significant current and emerging issue impacting the commercial real estate industry is the current and future state of U.S. infrastructure. According to the 1,100-member Counselors of Real Estate, infrastructure development supersedes affordable housing and climate issues on their Top Ten list of pressing challenges of real estate development.[1]
How infrastructure development boosts commercial real estate
Inadequate infrastructure places a firm limit to economic development possibilities. Commercial real estate values are married to a belief in and progress towards sustainable economic growth. In fact, “infrastructure—including transportation, utilities, and telecommunications—is the most important factor influencing real estate investment and development decisions in cities around the world.”[2]
Infrastructure isn’t only a long-term, macro-economic concern. It’s also about finding buyers and tenants for real estate projects. As priorities change among the most influential demographics, you’ll notice that their decisions give increasing weight to economy-independent factors including climate concerns and sustainable energy, access to public transportation and bike/walk-to-work opportunities, as well as ample convenient green space. In fact, JLL Research has found that office buildings near public transit command rents that are nearly 80 percent higher than those farther away.[3]
Implications of infrastructure decay and lack of investment
Of course, proposals for a multi-trillion-dollar infrastructure bill have swirled around Washington for years now. But a deal has proven to be more of a political talking point than a legislative priority so far. Until we see that change in any tangible and aggressive way, what can you do as an investor to put your money into solid long-term commercial real estate investments?
As you review commercial real estate opportunities, consider the impact that decaying roads, bridges, tunnels, railways, airports, power grids, water systems, and levees may have on the economy, and thus, your investment. Keep in mind that stronger infrastructure availability may help drive demand and higher rents. Do this evaluation at the local, regional, state and federal levels to find sweet spot opportunities that may not be immediately obvious and to help avoid potential missteps in locations with a strong past but a complicated future.
Local infrastructure projects reveal growth opportunities
One promising trend is that local and state governments and associations are taking it upon themselves to ensure that local infrastructure supports economic growth and appeals to residents and businesses.
For example, Lake Placid, NY is a mid-size locale with high-traffic pressures on infrastructure brought on by heavy winter sport tourism.[4] They’re pouring resources and political capital into creating a more sustainable, energetic and welcoming environment for businesses and residents that also appeals to those from out of town.
Some investments, such as sewer and water improvements, don’t directly attract more tourism, but do alleviate risks and pressure on individual businesses. Other upgrades, such as additional parking, provide greater accessibility to downtown and help attract more visitors, diners and shoppers. Combined, these investments can make a big impact; Lake Placid won the right to host the World University Games in 2023.[5]
That’s why we’re particularly excited about our current project, the acquisition, and renovation of a 91-room hotel right on Main Street in Lake Placid. In partnership with The Hampshire Companies and Wright Investment Properties, our third hotel combines the historic charm of Hotel North Woods with new amenities in a region that is increasingly vibrant and appealing to tourists. It’s an opportunity made far more compelling knowing that there will be improvements to the local infrastructure and that their first-class reputation as a two-time Olympic host city will continue.
If you’d like to learn more about our evaluation process for commercial real estate deals or our Lake Placid project, reach out, and let’s discuss what to look for as you explore your next opportunity.
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SOURCES
[1] (Boston Real Estate Times, 2020)
[2] (JLL, 2018)
[3] (JLL, 2018)
[4] (Bradley, WAMC.org, 2018)
[5] (FISU, YouTube)