TIP337: HOW TO IDENTIFY VALUE IN COMMERCIAL REAL ESTATE

W/ IAN FORMIGLE

20 February 2021

In today’s show, we speak with Mr. Ian Formigle, about the COVID-19 impact and how to identify value in commercial real estate.

Ian has over 24 years of experience in the Real Estate market, while his company has over 400 offerings with over $13 billion in commercial real estate.

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IN THIS EPISODE, YOU’LL LEARN:

  • How to value commercial real estate
  • How to take advantage of the trends not fully priced into the market
  • The best 5 cities to invest in
  • Which habits we have changed and the impact on commercial real estate

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Stig Brodersen (00:02):
On today’s show, we bring back a guest by popular demand, Mr. Ian Formigle. Ian has over 24 years of experience in real estate, private equity, startups, and options trading. As the CIO of CrowdStreet, Ian has over 400 offerings with over 13 billion in commercial real estate. Today we talk about how to value commercial real estate, how to take advantage of trends not fully priced into the market, and the five best cities to invest in right now. So, without further delay, here’s our interview with Ian Formigle.

Intro (00:36):
You are listening to The Investor’s Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

Stig Brodersen (00:56):
Welcome to today’s show. I’m your host, Stig Brodersen, and by popular demand we have one of our favorite guests with us here today. And that is Ian Formigle, Chief Investment Officer at CrowdStreet, and he is with us for the sixth time. So first of all, thank you, Ian, for joining me today here in The Investor’s Podcast.

Ian Formigle (01:13):
Stig, it’s a pleasure to be back on this show. As you know, I’m a big fan of what you do, and I love coming on this show. So, I’m eager for today’s conversation.

Stig Brodersen (01:23):
That sounds fantastic. And Ian as we kick off this interview, talking about the outlook for commercial real estate in 2021, let’s first take a look at 2020 because it’s not possible to say 2020 without talking about the Coronavirus. So let’s get right to it. How did commercial real estate perform in 2020?

Ian Formigle (01:44):
So, to begin with, the key theme for commercial real estate performance in 2020 was just simply unprecedented price dispersions that was driven by the effects of the pandemic. The results were either good, or very bad depending upon varying circumstances. So to begin, let’s provide some context as we get into the numbers. And I think we can look to some benchmarks for a little bit of help. I think the first is the S&P. That finished 2020 at up 16.26%. I think we can all agree Stig that that’s a fairly amazing annual performance number given where the index at mid year. Second is public REITS. The MSCI US Index captures 99% of all US REITS, so it’s a pretty good proxy. And that was down seven and a half percent for the year. And that’s an unlevered number, and I’ll get into that in a minute.

Ian Formigle (02:37):
So for the commercial real estate sector, when we think about private returns, there aren’t really any good publicly available data for price indexing. But there are good proprietary sources of data. And Green Street Advisors commercial property price index, or their CPPI is one of the better ones as it tracks a large sample size of private US real estate returns on an unlevered basis. So across all asset classes, Green Street CPPI was down 8.2% for 2020. But blending across all asset classes I think creates noise in the data because of that massive price dispersion that we witnessed in 2020.

Ian Formigle (03:19):
So now, when you break out that data by asset class, you have two types of real estate that were up across the board last year. And they were industrial at 9.5%, and manufactured housing at 11.5%. And on the downside, you have retail at negative 20.7%, and hospitality at negative 25.1%. And I think those numbers shouldn’t surprise anyone as we all saw the massive distress that hit these property types throughout the pandemic still continue to do so, really. Apartments, they were down a bit in 2020 on a blended basis, but nominally at 3.4%. But when you take this data, I think to truly get a sense of how private investors actually fared in real commercial real estate deals across the United States in 2020 you need to apply additional filters.

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