Ciminelli has always been active in the real estate market, making key investments and realizing opportunities when they arise. Investing in real estate can take many forms, but given Ciminelli’s full service commercial real estate platform, the value-add approach has proven to be successful. Our skills in property and asset management, and brokerage set our team apart from other investors and help our team identify unique opportunities.
The value-add investment strategy is a real estate investment approach that involves acquiring properties with the intention of making improvements that will increase the property’s value over time. This strategy requires exceptionally active management and in-depth market knowledge applied in combination to enhance the property’s income generation and overall appeal to tenants or buyers. Here are the basics of the value-add investment strategy:
- Property Acquisition: Investors identify properties that have potential for improvement, such as properties that are outdated, mismanaged, unoccupied, or have other inefficiencies. These properties are typically purchased at a price below their potential market value due to their current condition or management issues. Market intelligence and careful research are the tools used in a successful acquisition. You can never have enough information on market trends, property values, market, and economic factors.
- Value Enhancement: The core of the value-add strategy is to implement changes that will increase the property’s rental income and overall value. These improvements can include renovations, upgrades, and operational changes. Examples of value-enhancing activities include renovations, repairs, and cosmetic improvements that enhance the property’s appearance, functionality, and amenities. Operational improvements that create efficiency including reducing vacancies, timely response to leasing inquiries, optimizing tenant mix, and streamlining processes to increase cash flow are also critical elements. Existing and new tenants will see greater value in a property over time if the tenant experience is top notch including amenities, services and community elements.
- Active Management: Value-add investing requires hands-on management to oversee the implementation of improvements and manage tenant relations. The goal is to maximize the property’s income potential and overall performance. Having a full property management team in-place and ready to tackle all onboarding scenarios as well as manage capital projects is one of the keys to success in a value-add transaction.
Once a property has gained value through careful management, which can take several years, investors will look to capitalize on their investment through a sale, refinance, or simply by holding the property long-term. Whatever the strategy, the intention is always to capture the increased value resulting from the improvements made to the property.
The value-add strategy is popular among many investors because it offers the potential for higher returns compared to more passive investment strategies. However, it’s important to note that the strategy also comes with higher risk due to the need for successful execution of improvements, sound management practices, and an intimate understanding of market trends. As any real estate professional will tell you, the factors that affect value are numerous. Economic conditions, construction and materials costs, tenant sentiment, and more can all create a less than ideal scenario for your investment portfolio. Holding the property for a period of years and keeping your timeline flexible can help insulate investors from these types of market conditions.
In summary, the value-add investment strategy involves purchasing properties with the intention of making improvements to increase their value and income potential. This strategy requires active management, careful planning, and a solid understanding of the local real estate market dynamics.