The commercial property market continues to recover along with the US economy as a whole. However, prices have stalled in recent months perhaps due in part to rising interest rates. With that said, where are the investment opportunities and how can individuals best take advantage of them?
Dennis E. Pemberton, Jr. is Founder & Chief Executive Officer of Atlanta-based Global Asset Alternatives, LLC, a private real estate investment and advisory firm that engages in the acquisition, development, and operation of estate assets in the southern United States. GAA currently controls over $175 million of real estate assets and has participated in over $1.5 billion of transactions. He has a Bachelor of Arts degree in Business Administration from Morehouse College, an Executive Certificate in Real Estate Development from Massachusetts Institute of Technology and a MBA from Harvard Business School.
BLACK ENTERPRISE spoke with Pemberton, who describes himself as â€œvery bullish” on the long-term investment prospects for commercial real estate.
Hereâ€™s what he had to say:
Where do you see the opportunities? Are you looking at different types of properties or different geographic locations?
Dennis E. Pemberton: One thing that will impact real estate is the increasing population in the US. I think the US is projected to add somewhere between 80 and 100 million new people over the next 30-40 years. That will generate demand for all types of real estate. That is one of the main drivers. When you look at what the composition of those new individuals are going to be, a lot will be minorities. In terms of where those people choose to live will really dictate a lot of where the opportunities will be. I think weâ€™ll continue to see the resurgence of urban areas. Coastal areas will remain very, very strong. South Florida, California, the Southwest, the Northeast, Texas, all those markets that have a lot of those strong immigrant populations will continue to do well.
What are some of the other drivers?
Pemberton: You also have the aging of the baby boomers and where they will choose to live out their retirement. Obviously youâ€™ll have markets like Florida and Arizona and the Carolinas continue to see significant growth and then Las Vegas, etc. These lower cost, warmer weather climates will continue to see significant growth in population as the baby boomers retire and seek a lower cost of living and a higher quality of life. You will have the children of the baby boomers who are now reaching the age of graduating from college and forming their own households and how this group chooses to live. Generically speaking they tend to be more focused on urban living. Thereâ€™s some opportunities in urban locations proximate to transit and public transportation that are going to be a significant opportunity going forward.
The next major secular shift that I think is going to really positively impact real estate is the growing domestic oil and gas production industry. The US is moving towards being one of the largest gas production nations in the world and moving from a position of energy dependence to energy independence. With all of that production thatâ€™s driven by these changes in technology in the shale gas drilling and horizontal drilling techniques, etc., we will see a significant increase in employment and the population in these markets that have a strong oil and gas sector and a significant amount of wealth created in those markets. I think there will be significant opportunities in those markets â€“ Colorado, Louisiana, North Dakota, Texas and Pennsylvania.
What about areas that have been hit very hard economically, such as Detroit?
Pemberton: As the economy recovers youâ€™ll have the growth in the energy sector and the growth in other sectors. Youâ€™ll have wealth creation. People will buy cars. Car purchases have been increasing significantly and you have to think that that will positively impact Detroit. If the auto companies are committed to maintaining a strong presence in Detroit, then I do think that market can recover. From an institutional standpoint itâ€™s the uncertainty of the fiscal prospects of the city that is a concern. Weâ€™ll take a wait and see approach on that market.
Is there any concern about history repeating itself in terms of the questionable mortgages that really brought down the real estate market for a while?
Pemberton: There are some. I think as with many industries, the real estate industry is cyclical and one of the significant risks you always have in real estate is over-building.Â When you get too much supply and it doesnâ€™t meet demand thatâ€™s when people get into trouble; because, occupancies go down and then theyâ€™re not able to meet their mortgage payments and get foreclosed and that leads to distressed properties and it spirals and then the market spirals down. Right now, what I see is the recovery weâ€™re experiencing now is very slow and measured. I donâ€™t have any immediate concerns about a major bust in the real estate sector.