For many seeking to put their money to work on their own behalf, investment interest may be limited to traditional commodities such as stocks or bonds. However, according to financial professional Christopher Linkas, those who ignore the lucrative field of commercial real estate are doing themselves a disservice for a variety of reasons. To get a better idea of how these types of investments may benefit your portfolio, read his tips below.
Christopher Linkas began his investment career immediately after graduating from Bowdoin College in 1991. Although he found post-college opportunities limited by a recession caused by the savings and loan crisis, he was still able to start on a path that would lead him to investment expertise. In fact, he actually credits that recession with helping to sharpen his investment prowess. During that time, loans were being offered at heavily reduced rates to help stimulate the economy. There was therefore ample experience to be gained for enterprising young professionals interested in learning the ropes of the investment world.
In Linkas’ case, he wasted no time in finding work at a consulting firm that dealt in repackaged loans. Eventually, he moved into credit and investment work that had him based out of New York helping to run a successful credit and real estate funds business. During his time with the organization, he not only focused on opportunistic debt but also heading their commercial real estate division as well.
Why Commercial Real Estate
His experiences in the field have shown Christopher that commercial real estate offers some intriguing benefits over other forms of investment. One problem for those who contain their investment ventures to the stock market is that they are wholly dependent on the market for their gains. If an event occurs to affect world markets, investors can expect to ride that wave along with everyone else. Conversely, the investment professional who diversifies their holdings into commercial real estate along with stocks and bonds will find themselves better insulated from market fluctuations (Register.FCA.Org.UK).
It is, however, impossible to eliminate value fluctuations altogether, even when diversifying into real estate. In order to work toward this end, Linkas recommends understanding the factors that can also affect how severely values can fluctuate. An example of these factors includes the type of property one is purchasing, for instance, properties that experience demand seasonally versus those that have year-round demand. Additionally, properties that are found in densely populated areas, such as urban centers, tend to fluctuate less with market forces.
Along with a drive to avoid fluctuations and to diversify holdings, investors must also seek to target an acceptable level of risk when purchasing and operating commercial real estate. This will indirectly allow the investor to aim for an expected return, though by the very nature of investment variance those returns are not guaranteed. Correspondingly, Christopher advises that commercial properties can be broken down into three types that vary by risk and are suitable for different types of investors.
The first real estate type is called a core property. These properties are denoted as having an already established source of income, be it from renters, business owners, or other methods. This cash flow is reliable and can be counted on to continue with a high degree of confidence. The downside to this is that, since the value of the property has largely been realized, its purchase price will be relatively high and won’t appreciate as quickly as other property types. This stability makes these ventures enticing for those who want to avoid high-risk scenarios and are willing to give up some potential return to achieve these ends.
The second property type highlighted by Linkas is called value add. These properties have some cash flow, but there is a problem or inefficiency that is causing them to not realize their full potential. In these situations, the investor must input additional resources in order to bring the property up to a higher level of earning. There is a somewhat greater risk with these properties when compared to core properties since it is possible that the investment’s projected full value may fail to materialize. Therefore, these types of properties are suited for those who are willing to take on a bit more risk in the pursuit of somewhat higher returns.
The final category is known as opportunistic properties. These are real estate ventures that have little or no existing cash flow but the possibility exists for development that may result in a higher value being realized. As with the previous category, the danger here is that a property may fail to appreciate in value and may never begin to generate cash flow. For that reason, this is a high-risk opportunity and is suitable only for those who are willing to take on this heightened risk in the pursuit of higher returns.
Though the above advice from Christopher Linkas is born out of his early work in the field of investment, it is perhaps helpful to see where that expertise has led him in his advanced career stages. Currently, he is the European head of credit for a twenty-person group based in London. His group, responsible for opportunistic investments in the UK-Euro regions, has focused on a variety of investment categories throughout the area. Some of these specialties include secondary LP interests, non-performing loans, shipping, leases, and renewables. He and his team hold numerous investments in the world of commercial real estate and his preceding advice stems from his first-hand experiences in the field.
Though it is tempting for investors to stick only in the areas in which they have experience, there is a great deal of value to be gained from pushing the boundaries of their areas of operations. This practice will not only open new opportunities but will also help to diversify holdings and protect against variance. If you have an interest in the field of commercial real estate investment, the above tips from investor Christopher Linkas can serve as a jumping off point to getting started. With that knowledge in hand, investors can proceed with further exploration into the potential benefits of this investment vehicle.
More about Christopher Linkas at https://www.crunchbase.com/person/chris-linkas