Category: Marc Jaffe Indianapolis Investor

It’s been an undoubtedly hot real estate market nationwide, but how is commercial real estate faring in the current climate? In particular, what’s the latest news for office space rentals, apartments, and new construction out of Indianapolis? Here, Marc Jaffe an Indianapolis Investor discusses some of the top stories making the headlines. 

Significant Investments in Elevator Hill

Once Angie’s List website’s headquarters, Elevator Hill was abandoned by the company in 2018. It maintained a few tenants, but it was by no means a source of hope for commercial development. 

But that’s all about to change. There’s a big push to develop it, a movement spearheaded by the developer, 1820 Ventures. 

With $250 million invested over ten years, the 1820 Ventures firm and city staff are looking to create a fresh space for new office structures, multifamily properties, retail space, and parking garages. 

This will be an extensive project, including demolishing dilapidated structures and 6 acres of development. With so many retail, business, and housing opportunities, it could very well be the city’s newest hot spot for work and play. 

Downtown Indianapolis Office Space is Very Affordable Now

When the pandemic struck, there was an immediate shut down of office spaces. Any businesses that weren’t essential were expected to have employees working from home. However, employees have slowly been returning to the office. 

Commercial property owners in downtown Indy have had to get creative to fill spaces, and businesses are discovering very compelling incentives to sign on with new leases. 

Areas outside of downtown including the Indianapolis suburbs are seeing an even stronger market for commercial office space rentals.

However, rent is more affordable for smaller businesses to take advantage of, and we expect downtown Indy to see new coffee shops, restaurants, and other offices open up in 2022 and 2023.

A big happening in the downtown commercial real estate market is the new Bottleworks District development, which is planned as almost all office space. The Lumina Foundation has signed on and will be the anchor tenant at this new property.

Affordable Housing Going Up

The country has seen a boom in the housing industry, and Indiana is no exception. With housing prices higher than ever, there is a significant demand for affordable housing, and investors are now stepping in to fill these needs. 

Two of the newest hot spots for affordable housing are the former Bates Hendricks school site and the south side of Indianapolis off Interstate 465. 

Between the two sites, firms are investing over $80 million. Beautiful amenities are planned, including a rooftop deck for one and swimming pools. These should be going up toward the end of 2022 and hopefully provide the relief families need to find housing in the ever-sky rocketing market. 

The Round-Up

Although the pandemic temporarily slowed down the market, commercial real estate continues to thrive in Indiana. Investors are pouring cash into housing, retail, and office space, even in downtown Indy.

As residents urgently seek housing, apartment buildings will continue to be a solid play for investors, and time will tell how businesses adapt to new office space needs as we emerge from a complete halt back to regular operational models. 

Commercial real estate has grown as a popular investment class within the last five years thanks to its consistent returns and high growth potential. While the residential real estate market has become quite volatile due to the global pandemic and housing shortage, commercial real estate has remained a more reliable investment. However, while commercial real estate, or CRE, has high-profit potential, not every commercial investment is created equal. Marc Jaffe, an Indianapolis investor, stresses that before investing in commercial real estate, would-be investors must first understand various facets of CRE investment and thoroughly research CRE best practices. 

Have a Contingency Plan – Capital Reserve Fund 

Any investment possesses a certain degree of risk. For this reason, many investors set up cost contingencies or additional funding to help with unexpected expenses such as renovations, management changes or rent raises. Indianapolis investor Marc Jaffe states that cost contingencies are crucial during periods of negative cash flow, specifically when an investor is improving their property and spending large amounts of cash on renovations. Within the commercial real estate industry, the standard contingency budget is between 5 to 15%; however, this budget may not be large enough depending on the asset and its performance. Investors can also set aside a capital reserve or replacement reserves fund. This type of fund has money set aside for unexpected expenses beyond capital improvements and is often created before a property nets any positive cash flow. The typical capital reserve fund will have between 3-5% of gross rent. 

Research Key Commercial Real Estate Metrics

Net Operating Income (NOI): The net operating income or NOI of a property is calculated by subtracting operating expenses of the first year from the property’s first-year gross operating income. 

Cap Rate: A cap or capitalization rate is used to calculate the value of an income-producing property such as a strip mall or office building. Cap rates estimate the net present value of future profits or cash flow and help investors recognize a potential property investment. 

Internal Rate of Return (IRR): Internal rate of return or IRR estimates the interest an investor will earn on each dollar invested. The IRR calculation will estimate interest earned beyond net operating income and purchase price and provide investors with a prediction of long-term yield. 

REITs and Fractional Ownership 

Commercial realty will often require high initial investment costs. Although single investors can be the sole investor in a variety of commercial real estate projects, more often than not, investors prefer to invest in commercial real estate via REITs or through fractional ownership. 

REITs: REITs or real estate investment trusts are quite similar to mutual funds. Fund managers will select desirable real estate assets and pool cash from a number of investors. The cash is then divided across multiple assets, and any returns are clubbed and distributed to investors based on their initial investment. 

Fractional ownership:

Fractional ownership allows investors to pool their investments and purchase a property far outside of any individual’s budget. Individual investors can purchase one or more fractions of an asset, allowing them to increase their portion of ownership over an asset. All returns and capital appreciation are paid back to investors in the ratio of their ownership.