For institutional investors, the hunt for yield is on. Despite the Federal Reserve raising interest rates in December, rates are still at a historic low, presenting appealing opportunity for banks, mutual funds and other major firms across the country. As competition for high-yield assets heats up and interest rates climb, investors need surefire ways to evaluate returns and mitigate risks.
This is certainly no easy task. Theoretically, these firms should be armed more than ever, considering the new wave of commercial real estate (CRE) data and technology tools available on the market. Yet, therein remains a fundamental ingredient that’s often overlooked—one that helps alleviate and accelerate the search for healthy yield: commercial tenant data.
As institutional investors continue their quest to diversify their portfolios and reduce risks, access to commercial tenant information can help uncover valuable property details that point to probable yield. Armed with occupant insights, institutional investors can better gauge asset performance, deduce future tenant stability and uncover opportunities for passive income so that, regardless of market fluctuation, success is secured.
Staying Ahead Of The Curve
Mutual funds, commercial banks and other institutional investors know the volatility of the market. As they seek potential investments, defensive strategies in portfolio diversity can help secure high returns, even in times of uncertainty. This requires a comprehensive understanding of an asset at play, especially regarding current occupants. Why? The stability and sophistication of an investment is largely contingent on its tenant base.
While not all occupants have to be “blue-chip companies,” institutional investors look for established, reliable businesses with healthy leasing track records. These tenants have the resources to continue renting space and can guarantee a building’s income stream over time. With these insights, investors can prove the stability of a potentially questionable asset to ensure their portfolio is armed—especially in periods of inconstancy.
Additionally, knowing what space isn’t being occupied can help determine an asset’s yield. Access to tenant and property data helps investors to expose vacancies that might affect profits down the line. For example, if an investment firm is interested in an office building with 50 spaces inside, but only 40 are occupied, that’s 10 floors of missed opportunity. Add up the cost of leasing brokers and other expenses accrued trying to fill these floors at a later date, and this can seriously impede ROI.
Having this knowledge, as well as insight into the current commercial occupants, elevates an institutional investor’s search for profitable purchases. Commercial real estate platforms that harness tenant data make it easy to see exactly who’s renting a space, as well as who isn’t.
Securing Passive Income
Access to commercial tenant data can also open more doors to passive income opportunities, which, particularly in times of uncertainty, create a consistent source of revenue. Specific leasing agreements, like triple net and percentage leases, mitigate primary owner responsibilities while generating profits. For institutional investors, these types of agreements provide more stability with consistent returns. Compared to more unpredictable and involved options, such as full-service leases, the expected yields that stem from net leases are attractive and lucrative for both parties, as tenants assume all property responsibilities while institutional owners maintain steady proceeds.
With the right tools, banks, REITs and other large firms can find these opportunities faster. To reiterate what I mentioned earlier, the overall value of an asset is largely influenced by its existing tenant base. Understanding what types of tenants and industries are most likely to sign a triple net or percentage lease, then looking for and evaluating buildings with those specific types of occupants can improve the hunt for yield.
Commercial real estate technology backed by tenant data can fuel stronger forecasting on passive income. For institutional investors seeking triple net and percentage lease opportunities specifically, access to this data streamlines their sourcing strategies and arms them with the necessary intel to make informed investment decisions.
These data platforms can empower firms to closely examine an asset’s occupants to deduce whether or not they might be operating under such terms. Even more importantly, they provide the accurate ownership and property manager information, including name, email address and phone number, for outreach to confirm the property’s net operating income (NOI). Such rich tenant intel offers an easier way to unlock passive income opportunities and enables institutional investors to achieve confident decision-making.
No matter the investor, one thing’s for certain—the hunt for yield is tricky and comes with an array of associated risks. As REITs, banks, and other large firms continue their search for profitable properties, it’s vital they arm themselves with invaluable tenant insights to secure better ROI.
Rich Sarkis is CEO of Reonomy, a national commercial real estate data company in New York City.
