Why Commercial Real Estate?

by | May 9, 2022

At Sage, we focus on a wide variety of cash-flowing, asset-backed investments. We zoom in our efforts on assets that generate returns from quarterly distributions and any gain on the asset’s sale. 

Commercial real estate is one of the main types of assets we like to focus on because the real estate has some underlying value that if the business that sits on top of the real estate struggles, we still have the dirt to fall back on.

There are many different types of commercial real estate. Some of the segments we focus on are:

  • Industrial Assets and Distribution Centers
  • Retail Assets 
  • Multi-Family or Apartment Complexes
  • Office Buildings
  • Marinas (both dry stack and wet slip)
  • Hospitality assets or Hotels
  • Self-Storage Units
  • Student Housing
  • And many other asset classes.  

BENEFITS OF OWNING COMMERCIAL REAL ESTATE

RENTAL INCOME: Owning commercial real estate like a retail center or a distribution industrial building gives the investors a rental income from the tenant that occupies that property—the gain on the value of the underlying property when it is sold usually occurs years later. The rental income services the debt on the property and any expenses associated with that property, and the free cash flow is distributed to our partners on a quarterly basis.  

PROPERTY APPRECIATION: Our primary focus is to invest in significant real estate where the underlying value of the land will continue to appreciate over time. Investing in front of the path of growth helps property appreciate more quickly with the theory that more people tomorrow create more demand for goods and services in a submarket, and thus more tenants will want to be there. Whether it is a strategically located hotel or marina, or industrial property in a distribution market, location is key. —- Location! Location! Location!

REAL ESTATE DEPRECIATION: One of the other great benefits of investing in commercial real estate is depreciation. Real estate depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of particular property placed into service by the investor. Depreciation is essentially a non-cash deduction that reduces the investor’s taxable income. Many investors refer to it as a “phantom” expense because they are not actually writing a check. It is merely the IRS allowing them to take a tax deduction based on the perceived decrease in the value of the real estate.

INFLATION PROTECTION: Commercial real estate also can provide a good hedge against inflation. As countries like the U.S. print money to stimulate economic growth, inflation occurs, and the price of real estate with high replacement costs will also increase. For example, if the costs of wood, steel, and labor go up, then the cost to build or replace a building will go up. And thus, the value of the existing buildings will go up as many investors and developers will invest capital in existing real estate rather than new construction. This trend will allow the investors who already own real estate to protect themselves from this price increase and inflation by having their assets increase in value.