All posts by Jared Husmann

how homeownership impacts commercial real estate.

Commercial Real Estate Trends: What Homeownership Rates Can Tell Us

One major housing question many adults face at some point in their life is the question of whether to rent or buy. It can take time to save up for a down payment and prepare for the responsibility of homeownership, but buying a house is an investment many aspire to. Renting, on the other hand, has its own set of pros and cons.

If you’re interested in investing in multifamily rental properties, you should be keeping an eye on the homeownership rates in your area, as they can significantly impact the rental market. Read on for more information about homeownership rates and how they can impact your investments.

What is homeownership rate?

Simply put, homeownership rate is the percentage of owner-occupied households in a given area. There are many ways to look at homeownership rates, and many ways to segment homeownership data according to specific geographic areas, demographics and more.

In the United States, the current national homeownership rate is around 65.4%. The homeownership rate hit a peak of 69% in 2005 and then dropped as low as 62.9% after the economic recession of 2008. Typically, about a third of all households in the US are renter-occupied and two-thirds are owner-occupied.

In addition to the changes over time and according to economic conditions, homeownership rates vary by region, age, race and ethnicity, household income and more. For example, in Iowa, the homeownership rate is around 72%. Homes are relatively affordable in Iowa, so more individuals are able to buy instead of renting. By contrast, the homeownership rate in California is around 55%. Real estate in California is, on average, more expensive, so more people stick to renting.

We recommend taking a look at the US Census homeownership data to find the relevant information for your area.

Why keep an eye on the homeownership rate?

The main reason for multifamily investors to keep an eye on the homeownership rate is fairly obvious. If the homeownership rate is trending up, that means more people are going to be exiting the rental market, and there will be more rental vacancies. If the homeownership rate is trending down, that can indicate that more people will be renting. While it’s impossible to predict the future, looking at commercial real estate trends can provide useful insights, especially for those looking to invest in multifamily properties.

As you study homeownership rates and trendlines, investigate things like mortgage interest rates and other things that can cause the homeownership rate to shift.

The Katalyst Team: Tracking Commercial Real Estate Trends in Iowa and Beyond

Our team is eager to help you find success as a multifamily property investor. If you have any questions about commercial real estate, don’t hesitate to reach out to our team.

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NOI and Cap Rates: The Ugly Truth

Two of the most common metrics used to measure the profitability of a multifamily real estate investment are net operating income (NOI) and capitalization rate (cap rate). These metrics can also be used to provide a quick comparison between different properties in order to help investors make informed decisions about which investment might be the best deal.

What some beginner investors don’t realize is that NOI and cap rate calculations are not always the most accurate tools for predicting a property’s profitability. The KataLYST Team has spent countless hours exploring commercial real estate trends and common practices, including deep dives into calculations such as NOI and cap rate. Read on to find out more about how to calculate cap rate from NOI accurately and which metrics might be more accurate for determining profitability in multifamily markets.

What does NOI mean in multifamily?

NOI stands for net operating income. NOI is a before-tax figure similar to the EBIT (earnings before interest and taxes) figure commonly used among other industries. Net operating income includes all revenue from the property, minus all reasonably necessary operating expenses.

The “reasonably necessary” qualification is the grey area in this calculation. Later, we’ll explore some of the variations that can occur as people approach NOI calculations differently.

What does cap rate mean in multifamily?

Cap rate, or capitalization rate, is a calculation used to assess a property’s profitability and return potential. The equation for cap rate actually uses a property’s NOI and its current market value to predict an average rate of return.

Because cap rates use NOI to calculate ROI (now there’s a mouthful), they can be unreliable if the NOI is not calculated accurately.

How to calculate cap rate from NOI

The formula for calculating capitalization rate for a property is simply net operating income/current market value. The resulting percentage represents an estimated annual return on investment.

Cap rates can be a useful tool for estimating a property’s profitability and generates a quick, at-a-glance comparison metric for multiple properties. But there are risks involved when looking at NOI and cap rates.

Top 3 Reasons Cap Rate and NOI Can Be Deceptive

1. Not Every Owner or Agent Calculates NOI the Same Way

One of the top reasons cap rate and NOI can be deceptive metrics is due to the simple fact that different owners and agents may calculate NOI differently. Typically, NOI involves total revenue minus total operating expenses. Revenue should include things like:

  • – Rental income
  • – Parking fees
  • – Laundry machines
  • – Other service fees

Operating expenses should include things like:

  • – Insurance costs
  • – Utilities
  • – Property management fees
  • – Property taxes
  • – Repair and maintenance costs

Issues arise when there are discrepancies in what one owner or agent includes in the NOI compared to another owner or agent. Some of the above expenses may be excluded from the NOI calculation. Miscellaneous expenses like cleaning costs and vacancy costs are often forgotten. It’s not always clear which items are included in the NOI calculation, which makes comparing different NOI and cap rate numbers difficult.

2. NOI Can Be Deliberately Manipulated

While some variation in NOI calculation is natural, some owners and agents deliberately manipulate the NOI numbers to put the property in a more favorable light for potential buyers which is often called a “Pro-Forma” and attempts to show what a property is capable of doing; however, these “Pro-Forma” numbers should be heavily investigated to determine their accuracy.

3. Inaccurate NOI Can Impact Cap Rate

Because NOI is used to calculate cap rates, both numbers can be rendered useless if NOI is inaccurately calculated. If you’re suspicious about what has been included or excluded from a property’s NOI, it’s likely the true cap rate is different from what’s being advertised.

Another (Better) Way to Measure the Value of a Multifamily Property: Price Per Unit

At the KataLYST Team, we don’t recommend looking solely at NOI and cap rate to determine whether a multifamily real estate investment is likely to be profitable. Instead, we suggest looking closely at numbers like the price per unit and price per square foot. Unlike NOI and cap rate, price per unit and price per square foot are much less likely to be manipulated.

As a buyer, you can find out exactly how many units are in a building and what the property’s square footage is. These numbers are fixed for each property and can be easily compared across different listings.

If you do look at NOI for a potential commercial real estate investment, understand what went into that NOI calculation. And if you’re comparing cap rates, investigate that NOI figure. As we discussed previously, owners and agents will calculate cap rate from NOI, and if the NOI does not include the expected expenses, it won’t be accurate.

Learn More About Commercial Real Estate Trends in Iowa

With years of experience in multifamily investing and commercial real estate trends, the KataLYST Team is eager to partner with you and help you on your property investment journey. Reach out today to learn more, or explore our current listings.

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Commercial Real Estate Trends: The Impact of Inflation for Investors

The prices of goods and services in America change constantly. While some brands raise their prices, others offer discounts to try to keep up with the economy. For many years now prices have been rising, which causes inflation. In times of inflation, the value of the dollar decreases meaning the dollar doesn’t stretch as far as it used to. While inflation can have a negative impact on consumers and even professionals across many industries, multifamily property owners can actually benefit from it.

The KataLYST Team has been studying and keeping up with commercial real estate trends in Des Moines and surrounding communities. We also specialize in multifamily properties and are committed to helping Iowans get the most out of their investments. Read on to hear our top tips for multifamily property investors in times of inflation.

What is the impact of inflation for investors?

For many investors and property owners, inflation will negatively affect their large investments because, as we mentioned, the value of the dollar gets you less than it used to. This means that commercial property owners with long leases or contracts could potentially lose out on profits if their rates don’t account for inflated costs of maintenance, construction, etc. These types of leases typically exist for commercial properties like offices or retail buildings.

But, inflation presents different opportunities for multifamily property owners. In fact, it gives them a very unique opportunity to capitalize on inflating costs. Since leases at apartments and multifamily properties typically run around 6 months to a year in duration, multifamily property owners can continually renew contracts and even raise rents each year to keep up with continually rising costs. As inflation forces rent increases for tenants, your main revenue stream as a multifamily property owner also increases.

Inflation in the Multifamily Industry

With a better understanding of inflation and how it impacts commercial property investors, we can predict what commercial real estate trends will follow. We know multifamily property owners will have a much faster turnover and can therefore keep up with inflation rates. We can then predict that they will hold on to their property investments during a time where inflation is rising since they’re likely to make a better profit.

Unfortunately for other investors, this can make buying new properties difficult. If current owners are reluctant to let go of their investments, then there won’t be many multifamily properties up for sale. Any available property will increase in demand, and likely price as well, creating a more competitive landscape for multifamily property investors.

Contact Our Commercial Real Estate Experts in Des Moines

The KataLYST Team has years of experience in commercial real estate, and our experts can help you understand more about the industry. Reach out today to learn more and find out commercial real estate trends.

Why Hire a Specialist: The Road to Commercial Real Estate Success

The rental market has been booming lately, and if you’ve considered dipping your toes into multifamily rental properties, make sure you’re fully prepared. Investors can use commercial real estate as a tremendous opportunity to make more money, but if they don’t do their homework they could find themselves regretting their investment. Find out why hiring a multifamily real estate specialist is worth it and what expertise an agent can provide to buyers.

The Advantages of Hiring a Commercial Real Estate Broker

There are many reasons to choose a commercial real estate (CRE) specialist over what we call a “generalist”, and many benefits to doing so. The KataLYST Team is made up of experienced real estate brokers in Des Moines, and we like to think of choosing a CRE specialist for your commercial real estate needs similarly to a patient choosing a doctor with certain specialties to diagnose and treat his or her condition. For example, you wouldn’t consult a general family practitioner about cancer or heart surgery, you’d seek out a specialist. At The KataLYST Team we are full of specialists to support your individual needs!

A commercial real estate broker specializes in commercial real estate. That’s obvious. However, if we break it down further, there are specialists for different types of commercial real estate properties, such as multifamily properties. Hiring a commercial real estate broker who specializes in the market you’re interested in exploring can benefit you and your business tremendously. Keep reading to learn more about why you should hire a commercial real estate specialist to help you find the right property to invest in and how to get the most out of it.

Industry knowledge and data – As a potential investor, it is important to keep in mind the vast differences between commercial real estate and residential real estate. A CRE broker who specializes in investment properties will be able to provide you with knowledge of the market that general brokers likely won’t have. They’ve spent years studying their particular area of commercial real estate and have experience working with other brokers in your area. A specialty real estate broker will know exactly how to find the best deals, and even have insider knowledge on deals that haven’t yet made it to the market. By relying on the expertise of a specialist real estate broker, you will have a major advantage when it comes to choosing the property that best suits your business’s needs and goals.

Access to their network and contacts – Commercial real estate specialists often work together over years and form professional relationships with one another. This can be a huge advantage for you as you partake on your journey to finding a property to invest in. Let’s say you have questions about other properties or investments. Because your broker has formed professional relationships with others in their market, they can find the answers for you. Access to your broker’s network could even land you a better deal because you will have more eyes and ears looking out for potential properties for you and your business.

Saves you time and money – Hiring a commercial real estate specialist can save you valuable time and money spent touring and viewing different properties. Their experience gives them knowledge about which properties are worth looking at and which aren’t before ever having to visit them. Plus, they’ll be able to reference data collected on commercial properties over time to infer which properties would require costly updates down the road based on past experiences. Don’t waste your time visiting properties on your own when a commercial real estate specialist can save you time and avoid unsuitable investments.

Will walk you through the steps to success – From the start of your investment journey, your broker will walk you through the steps to success helping you get the most out of your investments. Your real estate broker will represent you to the best of their ability and ensure you’re making the right decision for you and your business. They’ll take your experience, current portfolio, wealth management strategy and more into consideration when determining what investments are the right fit for you.

Know what terms to look for on contracts – Not only can a commercial real estate specialist share valuable knowledge about the market, but they can review and advise you on the legal work too. Let’s be honest, we can all walk through different properties and pretend we know what we’re looking for during a due diligence inspection. You might even have a good idea of what will make or break a deal for you. But, a specialist can tell you what isn’t there, such as information that a seller or agent has forgotten to show or even disclose. This information could very well be what ends up costing or saving you a lot of money in your investment. Make sure you’re on the saving end of this spectrum by hiring a specialty real estate broker.

Commercial Real Estate Brokers in Des Moines

The KataLYST Team’s Des Moines investment real estate brokers have years of experience in commercial real estate and can help you understand more about the industry. Reach out today to learn more and read about other commercial real estate trends. We look forward to working with you to create effective investment goals and strategies, and ultimately reach your commercial real estate goals.

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What is a K-shape Recession? How Will it Impact Commercial Real Estate

The economy was shaken by the global pandemic and many people have had to adjust their professional lives drastically. Entire industries were affected and many are still experiencing the impacts of the recession brought on by COVID-19.

While some things are starting to look up, we expect a number of the negative effects to be long-lasting. The experts at Katalyst are sharing insights on how the pandemic has and continues to impact the economy, and what commercial real estate will look like post-pandemic.

Different Types of Recessions

There are different types of recessions and recoveries, all of which are commonly represented by a letter that represents what the economic situation looks like when plotted on a graph. Economists and business decision makers can use these letters to better understand the economic state throughout the recession and to predict what the financial future will look like. The primary types of recessions are:

  • V-Shape – A V-shaped recession is the optimal recovery an economy can experience from a recession. This shape shows that the economy recovered quickly and to the state in which it was before the recession.
  • U-Shape – A U-shaped recession shows analysts that while the economy did have a sharp decline and eventually rose back to its pre-recession state, the trough is undefined. There was a period of stagnation before the economy began to recover.
  • W-Shape – A W-shaped recession, also referred to as a double-dip recession, represents the economy dropping twice. Initially, it starts out as a V-shaped recession, But, after showing false signs of recovery, the economy drops again before fully recovering to its pre-recession state.
  • L-Shape – L-Shaped recessions portray a steep economic decline that is not followed by a quick recovery. Instead, the economy experiences persistent unemployment and static economic growth.

economic-recoveryPhoto credit: visualcapitalist.com

What is a K-shape recession?

Typically, the people of a nation will experience economic changes as a whole, meaning the economic state would be represented by only one line if plotted on a graph. The K shape however, is rare and relatively new to analysts. A K-shaped recession is caused when one area of the economy prospers and another area suffers.

k-shaped-recoveryPhoto credit: uschamber.com

When our economy was faced with the impact of COVID-19, some industries thrived while others were halted. Industries like hospitality, food, and travel that rely heavily on foot traffic and face-to-face interactions were tremendously and negatively affected. In many cases, rules and regulations put in place to keep people safe from the virus caused businesses in these industries to close. On the other hand, technology, online retail, and similar industries saw great success as more and more people relied on these industries to purchase goods, services and more. When this type of recovery occurs and is then plotted on a graph, one line is used to represent the portion of the economy which thrived, and a second line is used to represent industries that were halted.

The Commercial Real Estate Industry Post-Pandemic

Throughout 2020 and into 2021, there has been a lot of economic uncertainty. One of the biggest questions for business and property owners was: how will the global pandemic impact the commercial real estate market?

  • Single Family Rentals Outperforming Multifamily: Financial issues faced by families and businesses during the pandemic caused home foreclosures. This could lead those who used to own a home to start renting instead.
  • Higher Rent Demand = Higher Prices: People delaying homeownership and the homeowners who faced home foreclosures are causing increased demand for rental properties. Property owners may recognize this surplus and raise rates accordingly.
  • Stability Depends on Class: Class A apartments have been more stable in rent collection during the pandemic since they are typically rented by individuals with a relatively high income or job security. However, Class C apartment owners have likely found it harder to collect rent payments. Because tenants of Class C apartments are usually people with service industry jobs or jobs that require in-person contact, COVID-19 rules and restrictions may have prevented them from working and making the money needed to pay rent.
  • Property Owners Need to Stay Alert: Property owners with multifamily investments need to regularly review their business strategies throughout the recovery period of COVID-19 and beyond. Doing so will allow them to keep up with trends and make the most of their investment.

Keep Up With Commercial Real Estate Trends Post-Pandemic

The Katalyst Team has years of experience in commercial real estate and can help you better understand the recession’s impact on the commercial real estate industry. We encourage you to contact our team of licensed real estate agents in Des Moines with any questions about commercial real estate, current listing, localized investments in Iowa, and more. Reach out today.

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Factors Impacting the Des Moines Housing Market & Rental Environment

Des Moines housing and rental market trends have evolved over the years and there are many factors contributing to these changes. Along with lifestyle and generational shifts, our world is still facing a global pandemic. This life-changing event has impacted the economy, how we live our lives and various industries for better or worse. Over a year in, we can start to anticipate which changes are here to stay and track Des Moines rental market trends.

These trends can be hard to pinpoint. If you’re looking for residential or commercial property in Des Moines, you might be finding it rather difficult. Understanding the Des Moines rental market trends that are impacting your search can help you with the process, and our experts at The Katalyst Team are here to share our knowledge.

Learn about the 5 main factors we believe are impacting the housing and renting markets in Des Moines along with our predictions for the future.

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Commercial Real Estate Trends in Des Moines Reveal Shifts From Urban to Suburban

Downtown Des Moines offers many multifamily opportunities. And yet, the suburbs have been seeing exponential growth. You might wonder why so many people are choosing to live in the suburbs as opposed to downtown when there’s housing available in addition to the endless fun opportunities for all ages.

Restaurants, music concerts and festivals, outdoor recreation, shopping and so much more can be found in Des Moines’ downtown area. Even so, people are realizing that they don’t need to live among the hustle and bustle to enjoy the perks of the city. Instead, they’re flocking to the outskirts to enjoy quiet living along the city limits.

We’re seeing many Iowans move from their small towns to these growing suburbs for the amenities and job opportunities their rural communities might not offer. As the number of individuals and families choosing to live in the suburbs increases, we may experience some growing pains in the Greater Des Moines area.

Suburbs to the west, like Waukee and Grimes, have experienced a lot of residential and commercial growth in recent years attracting more and more Iowans. In fact, Waukee is Iowa’s fastest-growing city and has grown by more than 74% since 2010, according to the Des Moines Register. Ankeny is another great example of a growing city just outside of Des Moines that offers close commutes, but has expanded to offer everything else you might need. The same article from above states that Ankeny has grown by nearly 50% since 2010, and it will soon be the metro’s largest suburb. In coming years, we expect even more exponential growth from the cities surrounding the Des Moines area, particularly those along I-35.

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Demographics Have a Big Impact on Des Moines Rental Market Trends

Millennials & Baby Boomers are the two largest populations that make up the housing and rental markets in Des Moines, and trends are shifting for these groups. Though individuals in these two groups are in very different life stages, in some cases, they may end up competing with one another for Des Moines commercial property and residential housing.

Depending on where they fall on the spectrum, Millennials may either own a home but are looking to upgrade, or they’re just getting to the age where they have the buying power to consider homeownership. By contrast, there is still a sizable population of Millennials who prefer renting, which leads to high competition and high costs in the Des Moines rental market. There are a variety of reasons why Millennials choose to rent:

  • Student loan debt makes it harder for Millennials to save money to buy a house.
  • Many Millennials are choosing to postpone marriage and having children as they take more time to discover what they want in life.
  • People are spending less time working for the same company nowadays. Renting gives them the possibility to pick up and go when their lease is up and accept a dream job across or even out of the state.
  • Duties such as yardwork, maintenance and repairs are handled by the landlord. Passing this labor and the hidden expenses that homeowners face can save Millennials their free time and the money to enjoy it.

On the other hand, Baby Boomers are shifting their preferences too. Some of the top trends that are impacting real estate trends in Des Moines include:

  • Baby boomers are living longer and therefore staying in the housing market longer. There is a high population of individuals over 60 years old who are choosing to “age in place.” By choosing to stay in their homes, they are limiting supplies and slowing down home sales.
  • For some, it’s becoming more common to downsize to a condo or townhome as people live longer and come to realize their home is either too big for them or too difficult to care for.
  • Some members of the older generation are choosing to live near their grandkids in retirement as more Millennials from small towns move to the suburbs.
  • Renting can help them save money instead of spending it on home expenses. That money can then be invested into their retirement fund, travel, family activities and more.

These two large demographics are both need housing and rental options, which is leading to higher demand and less availability. In some cases, there are simply not enough options in the residential and commercial real estate markets in Des Moines. With these populations making up the majority of the rental and buying population, everything is very competitive and prices are skyrocketing for both single-family and multifamily properties.

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Continual Growth Points to Rising Equities & Rents

We anticipate the costs of houses and rental properties to continue to rise in Des Moines. Demand is so high for new homes in the Des Moines area that people are feeling the need to pay above listing prices in bidding wars. In fact, home sales increased 1% from February of 2020 to February of 2021, with the median sales price increasing by $22,000 – $155,000 in 2020 compared to $177,000 in 2021, says the Iowa Association of Realtors. Some homeowners wanting to move feel stuck because even though they know they’d probably be able to sell above their listing price, they also face the pressure of needing to pay above the listing price on an upgraded home, which for some is not an option.

This extremely high demand in the housing market has some homeowners choosing to build. But, materials are in low supply due to the global pandemic, so high construction costs are driving up prices for new houses while impacting those trying to sell existing homes.

Additionally, higher prices of homes is forcing some Millenials to rent longer, but they may begin seeking out luxury apartments and townhomes. Most renters want to upgrade and will begin to look for more luxurious options, especially since working from home may be the new norm, and doing so in a large apartment is more ideal. Many Baby Boomers looking to rent will also seek out the luxury, Class A apartment and townhome options. These new and luxurious builds are popping up all over downtown Des Moines and in many suburbs.

With all the growth happening in the suburbs and so many new and luxury homes, townhomes and apartments, prices have been influenced across the board. The equity of homes and rental properties are rising, and Level A, Level B and Level C units have no choice but to increase their rent prices to account for the expected improvements and higher expectations of those in the market for something new.

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Our Central Location Makes Des Moines Commercial Properties Desirable

As overcrowding in major cities and hubs continues, opportunities for surrounding metros are popping up. Des Moines has the potential to bring in an influx of renters and buyers from Minneapolis, Chicago, Kansas City and Omaha as people seek a close or similar alternative that is still in the Midwest. As these larger metros become more congested, we’ll see a rise in out-of-state families and individuals looking to live here. This could be why we’re already seeing a crowded housing and rental market as the DSM metro rapidly expands.

But, what’s making so many want to live in the Greater Des Moines area? We have a lot to offer newcomers and returning or current residents alike – these are just a few of the major benefits:

  • More bang for your buck: Des Moines is recognized as the #1 best city for high salaries and low cost of living in the Midwest, and people are taking notice! With a variety of job opportunities and experiences, residents can make a great living and enjoy lower expenses compared to other parts of the country.
  • More space: City life can be loud, and many grow tired of the noise and crowdedness out on the coasts. Midwest living is much more spacious, quiet, and laid back, and we still have a large social scene. This is great for growing families with young children running around.
  • Highly rated school options: Iowa’s education systems are impressive, and our schooling options for K-12 and beyond are top rated across the nation. Des Moines schools typically have less crowded classrooms and more teachers, and provide more opportunities for kids to befriend neighboring children and develop socially.
  • Convenience: Des Moines offers easy access to the things you need, an impressive variety of fun things to do for single adults and families with children, and you don’t need to deal with dense crowds or stressful traffic. Additionally, professionals can expect a short commute from most suburbs, unlike larger cities.
  • Central location: Part of the draw to Des Moines is its central location and abundance of business opportunities. Buffered by I-35/I-80, Des Moines is a perfect hub for transportation with access to nearly every other area of the country. We predict growth along I-35 and other surrounding cities that show potential.

Des Moines is a place where you can build the life you want. With endless career opportunities, a heavy focus on quality of life, cultural experiences and beautiful spaces, Des Moines is a great fit for an array of lifestyles. We expect more people to take notice of the perks of Des Moines, helping us continue to grow compared to other Midwest metros.

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Changes in the Industry Impact Commercial Real Estate Trends in Des Moines

Out-of-state commercial real estate investors are noticing the expanding opportunities here as well. Des Moines’ promising growth and rental opportunities has drawn in many large investors, making bids on new and existing rental properties increasingly competitive. As the coasts and other metros experience growing pains, the small, growing city of Des Moines is attractive to those looking to build new rental properties.

Because larger investors are taking charge of the market, getting started in the multifamily industry in Des Moines is becoming more and more difficult. Gone are the days of Mom & Pop apartment complex rentals. Instead, small and large multifamily opportunities are being snatched up by companies built to run fleets of commercial rental buildings.

This makes the commercial real estate market more competitive for our local multifamily investors. Those who once owned a few properties as a side income are being forced out by huge corporations that own commercial properties across the country.

DSM was ranked in the top 10 places to live after the pandemic, and our multifamily experts expect Des Moines’ growth and rental opportunities to continue to rise, meaning these larger investors aren’t going away anytime soon. Many areas in the metro are extremely desirable for people of all ages and will continue to expand to meet their rising populations with apartment complexes and townhomes popping up rapidly. Our quick growth, vacant land to develop and raising demand for new rental properties provide the perfect opportunity for large investors to come in from out of state.

Keeping Up With Commercial Real Estate Trends in Des Moines

If you currently own Des Moines commercial property or are looking to enter into the multifamily industry, we can help you keep up with the commercial real estate trends in 2021 and beyond. The Katalyst Team is diligent about staying up-to-date, and we have years of industry experience to help you make wise investment decisions. Reach out to our team if you have any questions about the current market or future outlook.

How Technology is Changing Commercial Real Estate

How Technology is Changing Commercial Real Estate: Top 3 Trends in 2021

Technology is always evolving. Innovation has impacts that ripple across all industries, and commercial real estate is no exception. New and emerging technology is leading to changes in the commercial real estate industry. From virtual reality to smart building solutions, join us in exploring some of the hottest commercial real estate technology trends.

3 Commercial Real Estate Technology Trends

Technology and innovation impact many facets of the commercial real estate industry. Here are some examples of how technology is changing commercial real estate:

  • Market research and evaluation
  • Finding and closing deals
  • Communication with partners and tenants
  • Tenant satisfaction and retention
  • And more

Many features and processes across the industry have moved online, and the coming years will bring even more advancements. Our team has identified the top three technology enhancements shaping current and future commercial real estate trends:

1. Virtual & Augmented Reality in Commercial Real Estate

More property owners are using virtual tours to promote real estate sales. Virtual tours can replace traditional, static real estate photography and enhance the experience of exploring properties remotely. With an advanced and immersive remote tour, prospective buyers can feel confident about a property while avoiding the inconvenience and expense of constantly traveling for viewings and open house events.

Virtual tour technology has come a long way in recent years. Advanced camera equipment captures high-resolution panoramic imagery which is then integrated with a 3D model of the floorplan. The final product is an immersive experience where users can navigate their way through the space, viewing different rooms as if they were actually walking through the property.

3D virtual tours also help renters see what a new place will look like before they commit to signing a lease. If you’re a property owner, offering 3D tours will make your property stand out from others in the area. Ultimately, investing in 3D tours and interactive online experiences for prospective tenants is likely to help you fill vacant units faster.

2. IoT Enhances Commercial Real Estate Technology

Smart technology devices are becoming more advanced and less expensive, making them an increasingly attractive option for all types of applications. Installing IoT (Internet of Things) smart devices in an apartment building, retail space or other commercial property can greatly elevate the experience for renters. And you can implement some IoT devices at a relatively low cost.

Examples of using smart devices to enhance a commercial real estate space include:

  • Using automated door locks to make a building safer and allow tenants to open doors using an electronic key fob or even an app on their phone.
  • Installing smart thermostats to give tenants the power of custom, automated HVAC settings.
  • Upgrading to intelligent lighting that can integrate with occupancy sensor.

With the right smart technology solutions, tenants are given greater control over their environment. This is a powerful amenity perk to offer prospective renters and will set your property apart.

Smart devices can make a space more comfortable and more convenient for building management and tenants alike. Smart technology integration also provides opportunities for robust data collection and increased efficiency.

3. Smart Buildings & Data Collection Technology is Changing Commercial Real Estate

Smart buildings are always gathering data that can be used to optimize building performance. Occupancy or environment sensors and door counters are two examples of smart building integrations that can be used to improve efficiency. With data collected from these devices, building owners can adjust lighting, HVAC and other settings. With smart building data, resources can be redirected for use in high-traffic areas, and utilities can be streamlined to create a more efficient space.

There is some cost associated with integrating IoT technology and smart building solutions in a new build or retrofit project. But smart building technology provides valuable, actionable insights that lead to savings over time. Smart building solutions and data collection technology are growing commercial real estate technology trends we expect to see more of in the coming years.

Explore More Commercial Real Estate Trends

Commercial real estate is always changing along with advancements in technology. The Katalyst Team makes it a priority to stay on top of commercial real estate trends so we can offer helpful advice to investors. Our experts have years of experience in the industry and can help you with your next property investment. Reach out today to start optimizing your commercial investments and help them stand out from the rest.

2020 Commercial Real Estate Trends

2020 Commercial Real Estate Trends

Commercial Real Estate Trends: Takeaways From 2020

Many things about 2020 were unprecedented and shrouded in uncertainty, and the commercial real estate market was no exception. Throughout the year, there have been concerns from both renters and property owners as we all navigated this unpredictable territory.

As we look forward to the coming year and the predictions for the multifamily industry in 2021, we’ll first reflect on the trends we saw each quarter in our 2020 commercial market review for Des Moines.

2020 Commercial Real Estate Trends

2020 Commercial Market Review: Quarter 1

Central Iowa’s multifamily industry in 2019 ended on a high note, and that momentum carried over into the first months of 2020. The year started off looking very promising for Des Moines commercial real estate trends, with a Q1 sales volume more than twice the volume we saw in Q1 2019.

However, in the early months of 2020, a recession began. Iowa’s economy was already beginning to trend down during Q1, due to factors unrelated to the COVID-19 health crisis. But COVID-19 made things worse and triggered what most economists refer to as a “Black Swan” event. A Black Swan event is an unpredictable event that can suddenly change the direction of a market. A similar market event occurred after the events of 9/11.

In Q1, property owners started paying close attention to occupancy rates and lease-renewal rates to see how this economic uncertainty would impact renting behaviors. The outlook for Q2 was bleak, but we hoped for some clarity on the future market performance.

2020 Commercial Market Review: Quarter 2

As we moved into Q2, pandemic precautions persisted and things continued to be in a state of uncertainty. Initially, no one expected COVID-19 precautions and shutdowns to last all through the second quarter, and the uncertainty led to a stall in the market.

Sales volume fell to under $10 million — 45% of last year’s Q2 performance. But the market wasn’t completely shut down. Price per unit and CAP rate for Q2 multifamily transactions remained fairly consistent.

Although there were still a lot of unknowns in Q2, it was clear the economy was in a recession — maybe even a depression. COVID-19 has caused one of the biggest market disruptions in history. Iowa’s economy fared well in Q2 compared to surrounding states, mostly due to lower COVID case numbers and fewer COVID-related deaths.

The multifamily sector was also faring well compared to other commercial real estate markets. According to Katalyst Team surveys, 90% of Central Iowa multifamily tenants were able to pay the majority of their lease payments in April & May. The stock market began to rebound in Q2, surging 38% from its fall in March. Many property owners took advantage of refinancing options, and the Federal Reserve announced plans to keep rates low through the end of 2021.

2020 Commercial Market Review: Quarter 3

As we continued to learn more about the coronavirus and adjusted to life in a pandemic, confidence in the market rose during Q3. Sales volume almost matched Q1, and although the average commercial real estate deal in central Iowa was smaller, the local market began to bounce back.

In Q3, we started to see a K-shaped recovery from the economic recession that began due to the pandemic. A K-shaped economic recovery occurs when certain industries recover sooner than others. This makes sense, as local, national and global health precautions and restrictions remained in place.

Q3 also saw a 2.6% jump in homeownership, which amounts to thousands of renters lost in the commercial real estate market. This exodus from the rental market is most likely to affect the Class A multifamily sector — people who are choosing to rent versus renting by necessity. Property owners are watching for higher vacancy rates in Class A luxury apartments.

2020 Commercial Market Review: Quarter 4

In spite of a tumultuous year, the Des Moines commercial real estate market ended 2020 with one of the largest sales volumes on record: $108.09 million. This activity equates to what central Iowa would normally see in one full year! While most transactions were smaller, like the ones we saw in Q3, most of this success can be attributed to a record-breaking sale of a 509-unit spread sold for $55.67 million at a 5.15% CAP rate.

The Iowa economy continues to remain resilient during the pandemic, with positive leading indicators of growth for the state in 2021. Additionally, Iowa’s 3.3% unemployment rate is better than the national average of 6.7%, which means tenants are more likely to be employed and able to pay their rent.

In Q4, we saw residential building permits slow. While this is normal for winter months, it could mean we’ll continue to see a supply shortage in homes for sale and for rent. Watch for occupancy rates going into the spring to get a pulse of the market.

Keep Track of the Des Moines Multifamily Industry in 2021

At the Katalyst Team, we keep our finger on the pulse of local rental markets. If you’re a current or aspiring property owner, follow our updates on the multifamily industry in 2021. Reach out to our team if you have any questions about the current market or future outlook, and browse our property listings if you’re looking to explore new investment opportunities.

Return on Investment vs Return on Equity

Which is More Important: Return on Investment or Return on Equity?

There are many ways to calculate the value of a real estate investment: return on investment, cash-on-cash, internal rate of return and more. Individuals should study a variety of different financial ratios before investing in rental property.

One calculation, return on equity (ROE), provides important insights about the impact of changes in the market and shifts in commercial real estate trends. Savvy property investors need to continually evaluate how these outside factors could affect the value of their property. Read on to learn more on how to calculate return on equity and use ROE data to make key investment decisions.

What’s the Difference Between Return on Investment & Return on Equity?

Return on investment is a financial ratio between net profit and cost of investment. Return on equity is another measure of financial performance used to help investors understand the value of an investment. Unlike ROI, ROE takes into account value appreciation and additional factors.

How to Calculate Return on Equity for Commercial Real Estate

Return on equity is calculated using a formula of net income divided by shareholder’s equity. In real estate, the formula is better described as cash flow after taxes divided by the sum total of initial cash investment plus any additional equity that has built up as you’ve made mortgage payments. If your property value has increased, this should also be considered when you summarize your total equity and perform your ROE calculations.

How to Calculate Return on Investment for Rental Properties

Return on investment calculations are a ratio of net profit divided by the original cost of the investment. Finding your net profit will require more calculations, as you’ll need to consider maintenance expenses, utility costs, taxes and other costs incurred during remodeling and other projects. Learn more with our guide to calculating ROI on property investments.

ROI may be a simpler and more straightforward formula, but ROE can offer additional insights about property value appreciation.

Why Buyers Should Pay Attention to ROE When Investing in Rental Property

A property’s return on equity is a more fluid figure when compared to ROI, but it’s important to continually track ROE in addition to ROI. If you’re investing in rental property, keeping an eye on your ROE helps you understand the true value of your property.

Using ROE to Earn More on Your Investments

ROE and value analysis is extremely useful for helping property investors decide when it may be time to sell an asset and reinvest their capital in a more profitable property.

For example, imagine investing $1,000,000 in a property that provides $100,000 annual net income. One year after purchasing this property, your return on equity is approximately 10%. After a few years, surrounding development and building improvements double your property value. This $2,000,000 property is still bringing in $100,000 annual net income, and your ROE has dropped to 5%.

If you were to sell this property for $2,000,000 and reinvest that $2,000,000 in a property with a 10% annual return on investment, your annual cash flow would double. You’d now be earning $200,000 annually — all because you tapped into your equity and used it more efficiently.

Investing in your rental property with remodeling and other updates will increase the property value, but it’s often difficult to increase cash flow without astronomical, unrealistic increases in rent. Increase cash flow by selling your property and reinvesting in an asset that brings in more money annually. As your new property’s equity grows, continue periodically evaluating your new ROE.

Learn How to Calculate Return on Equity and Keep Up With Commercial Real Estate Trends

The Katalyst Team has years of experience in commercial real estate. If you’re investing in rental property, our experts can help you calculate how to get the best return from your property investment. Reach out today for a professional real estate value analysis or more tips for optimizing your commercial investments.