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Investment strategy: Investors turning to property acquisition

Tuesday, March 22 2016 9:14 AM

Investment properties in Wichita’s commercial real estate market are a hot commodity, so much so that demand is exceeding supply.

The commercial real estate market is an increasingly popular investment strategy amid stock market volatility and prolonged low interest rates, say local brokers who have been inundated with calls from individuals and groups looking for property to buy.

“It’s mainly higher yield,” says Randy Johnston, an investment broker with J.P. Weigand & Sons Inc. “As long as the alternative yields remain low ... real estate is going to be one of the best investment options out there for the risk.

Investment properties locally, he says, typically generate a return of around 7 percent. Compare that, for example, with a 10-year U.S. Treasury bond with a yield of less than 2 percent. Johnston says the ebb and flow of the stock market also is creating more risk than some investors are willing to take.

But here’s the rub: property owners aren’t as willing to part with their investments for those same reasons.

Johnston says property owners are concerned about how to invest the money they receive from a property sale or sales. Still, investors are showing a willingness to pay more for properties, brokers say.

Active market segment

Jeff Englert, a commercial advisor with NAI Martens, says the local trends mirror what is happening regionally and nationwide.

Apartments are a popular investment, he says, as more people choose to rent instead of buying a home. Single-tenant retail buildings also are popular as investments because they typically involve long-term leases, Englert says.

Multi-tenant facilities and office buildings also draw interest from investors.

Take Phil Ruffin’s $11.5 million purchase of the Epic Center in downtown Wichita as an example. The Riverview office building downtown also sold to local investors last year. Five local apartment complexes sold in 2015 to a real estate investment trust, according to a recent Weigand real estate report.

Brokers say market fundamentals have continually improved since 2011. Capitalization rates for class A properties are in the 6 percent to 7 percent range in all property segments, according to the Weigand report.

However, cap rates in Wichita are expected to remain relatively flat with investors expecting higher returns for the risks associated with properties in smaller markets. Brokers say local and regional lenders are aggressively pursuing deals, making financing less of a concern for property investors.

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