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Investors Look to Second-Tier Markets for CRE Opportunities

While the common mantra for real estate is ""location, location, location,"" an expert at private equity investment firm ""Siguler Guff & Company"":http://www.sigulerguff.com/ says commercial real estate investors should be focused on ""timing, timing, timing.""


In a paper released Thursday, James Corl, a managing director at Siguler Guff, asserts that many so-called ""secondary"" real estate markets, such as Atlanta and Miami, have just as much--if not more--potential than the country's most active ""primary"" markets (including New York, Washington, and Boston).

With real estate markets historically moving in cycles, the investment boutique says there are great opportunities between the valuation of a property at the bottom of the cycle and the value of that property when it comes to the top.

""While most investors seek increasingly expensive core assets in a handful of locations, they often overlook the opportunities offered by underpriced properties in recovering markets elsewhere,"" Corl said.

For example, the investment boutique points to Atlanta, where buildings trade at a 9 percent yield compared to 4 percent in typical New York properties. Corl insists Atlanta will grab more attention in the next year or two, as will warehouses in the Southeast.

Another area of opportunity noted by Siguler Guff is in smaller properties, which the firm says ""are more likely to be priced inefficiently as they are not as heavily analyzed as larger properties.""

On the topic of pricing, Corl and Siguler Guff say valuation risk isn't focused on as heavily as it should be, with investors leaning toward liquidity and leasing risk in response to the mistakes of the last decade.

""Looking at liquidity and leasing risks makes sense if you look backward at the 2009 pricing shock, but it doesn't protect from the risk of paying too much,"" Corl said.


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