Midwest Investment Opportunities Hot As Ever

March 1th, 2017

New York, Chicago, Los Angeles and other big cities get far more attention than Northeast Ohio when discussion turns to investment property sales.

However, as Newmark Knight Frank's 4Q16 Midwest Capital Markets investment report reveals, the market for office and industrial property sales in Cleveland, Columbus, Cincinnati, Detroit and Pittsburgh remain as hot as ever. Sales volume, prices and activity are at all-time highs. Additionally, rates have hit all-time lows and the buyer profile for these markets is more national in scope this time than during the prior cycle.

Thinking about this changing landscape provoked a powerful question for me: if your debt costs the same in New York City as it does in Cleveland, why wouldn't more investors reallocate their capital to strategic second-tier or tertiary markets such as ours (Cleveland) and the others outlined in the aforementioned report?

Given the profile of the most recent buyers in the Midwest, it seems others have come to the same conclusion.

Institutional investors typically buy based on an IRR, which assumes an exit cap. Also, the biggest objection is usually a lack of rent growth or appreciation in the legacy Rust Belt cities.

However, those investors who were brave enough to invest in this Midwestern area during the economic downturn are now reaping the rewards. In fact, many investors could have purchased properties in these markets for prices equal to their current rent. In particular, Detroit has seen spectacular returns, with the resurrection of vehicle production over the past few years.

Our markets have been through a good bit of up-and-down over the past ten years but at least for now, despite the price increases, investors can still find opportunities.