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.

Unique Services and Amenities

7 Unique Apartment Services and Amenities That Will Attract New Tenants

If you own a multifamily property, it’s important to invest in regular maintenance and updates. Potential tenants look for clean units with modern appliances and fixtures. If you want your properties to stand out from the crowd, offer unique apartment services and amenities tenants won’t find anywhere else.

Adding one or more of these unique features could add value to your property, attract new tenants and keep current residents satisfied and more likely to renew their leases. Read on to explore upcoming commercial real estate trends, along with some of the best apartment amenities to offer when you’re looking to boost interest in your property.

7 Unique Apartment Services Amenities We Expect to See

The idea of apartment services and amenities has evolved over the past several years, and many features that were once seen as perks are now expected. For example, many multifamily properties now offer on-site laundry rooms, workout centers and swimming pools. In order to offer tenants something new and different, consider expanding your property’s offerings to include unique apartment services and amenities.

1. Creative Spaces for Online Classes and Remote Working

While we’re currently in the middle of a pandemic, a large percentage of the workforce is working from home or working in a hybrid format that includes both remote work and time in the office. Additionally, many universities are offering more online learning options for students. Not all residents will have a spare bedroom or office to use as a workspace, so offering a modern space for working and learning could be a nice perk. Even when things start going back to normal, a quiet room with high-speed internet and soft seating options will still give tenants a nice break from the distractions of their home.

2. Multipurpose Theater Rooms for Screenings, Gaming and More

Some multifamily properties have a theater room that goes unused most of the time. In order to make the theater room a fresh and unique apartment amenity, rethink its purpose. Instead of only offering occasional movie nights for residents, allow residents to reserve the theater room for their own parties and events, host video nights or plan weekly screenings of popular TV shows. Many young renters appreciate apartment amenities that foster community and social connection.

3. On-Demand Dining and Delivery

The best apartment amenities and services are the ones that make life easier and more convenient for residents. For example, on-site laundry rooms (or in-unit laundry) let tenants save the time it would take to travel back and forth to a laundromat. On-demand dining and delivery options are a more unique example of increased convenience at a multifamily property.

If you own an apartment building, consider partnering with local food delivery services to give residents a list of local options to choose from. In many cases, you may be able to make a deal with restaurants and delivery services to get a discount for your residents. Also consider working with a local grocery store to coordinate mass deliveries for the entire complex.

4. Convenient Cafes and Coffee Options

Almost everyone needs their morning coffee fix these days, but many people don’t like the long lines and high prices at popular coffee shops. On-site cafes with quick grab-n-go coffee options are a growing commercial real estate trend for multifamily properties. This service adds another level of convenience and ease for residents, and it would be an easy way for owners to make additional money off of current residents without increasing rent costs. Offerings could include fruit, breakfast and snack items, simple coffee options, or even hire a barista to make speciality drinks.

5. Tech-Friendly Spaces for Meetings and Events

Many multifamily properties have some sort of multipurpose space such as a clubhouse or community center. These areas tend to be versatile and perfect for hosting a variety of events and activities, but they’re often in need of a facelift and technology updates. Add a projector screen, high-speed internet and movable furniture to make the space perfect for anything from arts and crafts events to roundtable discussions.

6. Spaces for Musicians and Performers

For people who live in apartment buildings, there’s nothing more annoying than a neighbor who plays their guitar at all hours of the day. If you provide sound-proof practice rooms, musically-inclined residents can have space to jam without disrupting other tenants. Another idea is to open up a stage in a common area — either indoor or outdoor. Host open mic nights, poetry slams and other entertainment events as an additional perk for residents.

7. Enhanced Gyms

Apartment gyms have long had a reputation of being a sad little room with a treadmill and a few dumbbells. If you invest in a more robust gym facility, you may entice more tenants. People who are into fitness may be willing to pay more for an apartment with a great gym, especially if it allows them to cancel their gym membership.

Learn More About Commercial Real Estate Trends & the Best Apartment Amenities for Attracting Tenants

If you’re considering making updates to your current multifamily investment or you’re building a new apartment complex, keep your residents’ needs and desires in mind. Offering unique apartment services and amenities will help keep your residents happy and your properties full. Contact The Katalyst Team for more creative ways to update your multifamily investment. We have years of industry experience and are always staying on top of new commercial real estate trends.

Multifamily niches

Multifamily Niches

How to Pick a Niche in Commercial Real Estate

One 2019 housing survey found 80% of respondents reporting that renting was a better fit for their current lifestyle when compared to buying a home. As more and more individuals choose to continue renting, renter demographics are also shifting. In fact, recent renter growth is largely in the high-income category.

In order to meet the evolving needs of renters, commercial property and apartment owners should consider optimizing their services and amenities to cater to a specific type of renter. Read on to discover our tips for how to pick a niche in the commercial real estate industry.

Popular Commercial Real Estate Niches in 2020

College Students & Recent Graduates

If you have a building for rent near a college or university, you’ll probably have students and recent graduates inquiring to be your tenants. Take advantage of recent apartment industry trends for younger renters, and you could be very successful in this niche. Read some of our tips:

Budget-Friendly Units

College students and recent grads aren’t looking for all the amenities and services you might have when trying to appeal to other demographics. Often clean, cheap and close to nightlife are the top priorities for young renters. You won’t need to worry about upgrading and updating your units to meet the high expectations of renters looking for luxury features.

Explore Co-Living Opportunities

Students and recent graduates are often interested in alternative housing concepts such as co-living. In a co-living situation, tenants rent a private room with a bathroom, but they share communal spaces like a kitchen and living room — much like a college dormitory.

Co-living appeals to students and recent graduates because it offers built-in socialization opportunities while still providing private space. Because the space you’re renting is smaller, rent is considerably less expensive than traditional solo-living options in bigger cities. Oftentimes, co-living apartments also offer flexible leases, which appeals to young adults who prioritize travel and the ability to move to new places to pursue new opportunities.

Modern Technology

This young demographic may not need all the bells and whistles of luxury living, but they do value technology and connectivity. Offering reliable, high-speed internet is a big perk for students and recent graduates. Allowing online rent payments is a must for young tenants, and offering a reliable way to submit maintenance requests. 

Working Professionals

Working professionals look for different features and amenities when they’re searching for an apartment to rent. Accessibility and community-based activities aren’t as important as the proximity to live events, restaurants and shopping. Many people who work downtown also prefer to live downtown, so an apartment located near office buildings can successfully attract the working professionals demographic. Here are some things to consider if you’re interested in the working professionals apartment niche:

Proximity to Major Employers

If your rental property is located near a hospital, office park or major employer, you may attract more renters in the working professionals demographic. Many people want to live close to where they work and spend time.

Increased Convenience for Renters

Pay attention to the needs of your target demographic, and focus on services and amenities that meet those needs. Working professionals are busy, and they often appreciate things that make life easy and convenient. Get creative! Offer a dog washing station or laundry concierge. A small investment in a few extra amenities can give you a big ROI in a roundabout way — tenants will often pay premium rental costs in order to receive a luxury living experience.

Seniors: A Growing Demographic in the Apartment Industry

There is a growing rental market for people in the baby boomer generation — many people over 60 are interested in downsizing but don’t yet need facility care. In fact, between 2007 and 2017, rental demand for adults age 60+ grew 43%!

In order to successfully cater to the senior demographic, it’s important to remember the features and amenities that matter most to them, including:


Although renters in this niche don’t need all the conveniences and care they might find in an assisted living facility, it’s still nice to consider creating a comfortable experience customized for tenants. Consider all aspects of accessibility, such as ramps, open floor plans to accommodate wheelchairs, grab bars in the bathrooms and other features and fixtures that make life easier for older people and their family members.

Community-Based Activities

Loneliness disproportionately impacts older individuals. If your commercial real estate niche caters to older tenants, consider how you can encourage interaction among residents, such as using a clubhouse space or meeting room to host social gatherings and parties. Community-based activities and events are an important perk for any commercial rental property designed to provide high quality of life for older residents.

Location & Proximity to Necessities

Older renters likely want a quiet, safe neighborhood. This demographic is not as interested in being close to attractions and nightlife, but they may appreciate living close to necessities such as grocery stores, pharmacies, parks and more. Convenience for essential errands is a great perk if you want your property to appeal to adults over 60.

How to Pick a Niche in Commercial Real Estate

There is no right or wrong when it comes to choosing a niche in commercial real estate, and it’s never too late to try to cater to a niche that makes sense for a building you already own. Consider the pros and cons of different locations, study demographics and get to know your potential tenants’ needs and desires.

For help learning how to pick a niche in commercial real estate, reach out to our team. The Katalyst Team is always staying on top of the latest apartment industry trends, and we’re eager to help you find success buying rental properties. Contact us today, and view our recent listings.

Still bullish on Des Moines: State of the Market participants see bright future for this Iowa city

Steady and resilient. Those are the words that panelists used during the second annual Des Moines State of the Market summit held Aug. 25 by Midwest Real Estate News and REjournals.

Just think of how participants would have described this key Iowa market if it, like all major cities across the country, wasn’t fighting through an economic slowdown caused by the COVID-19 pandemic.

As 2020 started, the commercial real estate market in Des Moines was strong, with deal velocity rising, vacancies falling and rents soaring. Then the pandemic hit, and that all came to a halt.

Participants in Tuesday’s State of the Market event, held virtually because of the pandemic, were quick to point to that strong start of the year when explaining why Des Moines was poised to recover quickly once life returns to a state of at least semi-normalcy.

“We are still bullish on Des Moines,” said Kris Saddoris, vice president of development with Hubbell Realty Company. “Our fundamentals haven’t changed because of the pandemic. All the things we have put in place are still here. We are poised to come of this very, very strong. We haven’t had widespread devastation here. Yes, the economy has been pushed down. But all the pieces that make Des Moines a strong economy are still there.”

Jared Husmann, president of the Katalyst Team at KW Commercial, pointed to Des Moines’ multifamily market as an example. This sector remains strong, with rent collections still high and vacancy rates law, he said.

Husmann said that Des Moines will get back to normal life eventually. He emphasized the word “normal” here, saying that he wasn’t looking for a “new normal” or “next normal.” No, Husmann is expecting the old normal, one in which Des Moines’ economy is again strong and commercial real estate deals and developments resume the rise he saw at the end of 2019 and beginning of 2020.

“The longer we go, the closer we are to getting back to normal,” Husmann said. “In Des Moines, you can still go out to restaurants. You are still seeing people moving about. We didn’t lock down like everyone else. You do see masks. But I see us continuing to move forward. We are getting back to normal.”

This doesn’t mean that Des Moines doesn’t face challenges. Levi Franzen, senior real estate relationship manager with U.S. Bank, said that he expects rents in the multifamily space to be flat or slightly declining in the near future.

Franzen did say, though, that apartment owners have started to back off on offering concessions to potential tenants. The reason? These owners have settled on slightly lower rents for their apartment units, rents that tenants are willing to pay without needing the enticement of concessions.

When deciding whether to lend today, Franzen said, U.S. Bank is performing stress tests to vet the health of projects and owners

“We are looking at the operator’s and property’s performance,” Franzen said. “We look at how they’ve performed historically. We then look at whether they can withstand any additional stress going forward.”

Franzen said that banks are still active, even with the pandemic.

“There is lending out there,” Franzen said. “Lenders are looking for well-capitalized projects or well-capitalized borrowers. It will depend on the lenders you are talking to, their comfort level.”

While the multifamily market has performed well during the pandemic in Des Moines and its surrounding communities, there are fears that even this sector will start to suffer now that the federal government’s enhanced unemployment benefits have disappeared.

Husmann said that this is a real fear. But he also said that Des Moines’ apartment sector is strong enough to withstand this new stress.

“Most of the tenants who were having trouble paying pre-COVID are the same ones having trouble now,” Husmann said. “Most of the tenants, though, are still paying their rents. It all comes down to the hierarchy of needs: food, water and shelter. People need shelter. They are paying on time if they can.”

Franzen said that the end of the enhanced unemployment benefits could have one positive effect: Restaurants and hotels had been struggling to get their workers back while these employees were collecting their enhanced unemployment benefits. Many were earning more on unemployment than they would have had they returned to work.

With the end of the higher unemployment checks, many of these employees might return to work.

“They needed that desire and drive to get back to work,” Franzen said. “We are seeing our unemployment numbers coming down.”

Des Moines CRE professionals said, too, that the pandemic will bring changes to the multifamily market, some long-lasting.

Saddoris said that more people might seek out housing with lower density. Instead of seeking vertical multifamily properties – the ones most common in urban areas – buyers might instead move toward horizontal communities, ones that offer more room and more space for social distancing.

People might continue working from home, too, long after the pandemic fades, Saddoris said. This might change the way new apartment properties are developed and designed.

“It’s all about understanding what people are going to want,” Saddoris said. “What does work from home look like? People working in the multifamily industry have to understand that a living space might also become a workspace now.”

Husmann said that he had already seen a trend toward townhome development before COVID hit. This trend should only accelerate now, he said. He also said that he is seeing a move toward the suburbs and away from denser urban areas.

Of course, multifamily isn’t the only sector performing well in the pandemic. The industrial sector is thriving, too.

And Jason Conway, director of real estate development with Opus Development Company, said that this sector will soar even higher once the pandemic fades away.

“If you liked industrial during COVID, you’ll love it post-COVID,” Conway said.

The retail sector, though, does face challenges. Brick-and-mortar retail was already struggling with the threat of online shopping. Richie Hurd, vice president with Hurd Real Estate, said that not all retail markets are created equal.

Hurd pointed to the difference between a market like Des Moines and one like Phoenix. The retail vacancy rate in Des Moines is about 4 percent. In markets such as Phoenix, though, where developers built quickly and often, the vacancy rate in this sector is far higher.

“We never overbuilt like Phoenix,” Hurd said. “Phoenix is a boom or bust town. When retail was hot in the ‘90s, with strip centers and retail centers everywhere, developers overbuilt. Now Phoenix is overbuilt or under-demolished, depending on how you look at it. In Des Moines, as you drive around the retail corridors you see vacancies getting backfilled.”

Hurd said several of Des Moines’ key retail destinations, such as the Jordan Creek Town Center, are healthy and active.

“If you have a good retail location, regardless of what is going on in the market, you will still have people wanting to be there,” Hurd said. “Des Moines is a good retail market and will continue to be strong after this is over.”

David Maahs, executive vice president of economic development with the Greater Des Moines Partnership, agreed that the future looks strong for Des Moines. He said that the city’s fundamentals are strong. That will help Des Moines’ economy and real estate market get through the pandemic.

Des Moines, though, has not been immune to the economic drag of the pandemic and the resulting slowdowns in business. Maahs said that the Des Moines market is down about 30,000 jobs today. That is better than many markets, but a bit worse than markets such as Kansas City and Omaha, he said. But most other Midwest markets do have a higher unemployment rate today than does Des Moines.

“We are doing well,” Maahs said. “We will do better than most metro areas in coming out of the COVID recession.”

The office sector in Des Moines, as it does throughout the rest of the country, faces plenty of uncertainty. The big questions center around when workers will feel comfortable returning to the office and how much space companies will require in a post-COVID world.

Adam Kaduce, vice president with R&R Realty Group, said that despite the uncertainty, he remains optimistic about the future of the office market in Des Moines.

“The office is that place where business leaders and teams go to innovate, collaborate and solve the biggest challenges of the day,” Kaduce said.

Kaduce said many local companies have already brought back a good portion of their employees to their Des Moines offices. The larger national users, though, have been slower to make this move, he said. Kaduce predicted that larger companies will keep most of their employees home until at least 2021.

Much of the delay in workers returning to the office space is related to the challenges cities and suburbs face in reopening schools during the pandemic. If students are learning remotely, and not physically in their classrooms, this makes it more difficult for their parents to return to their offices.

Kaduce said that he is encouraged by the number of companies in the Des Moines market today that are right sizing. They might be downsizing the amount of office space they need, but they are making plans to upgrade their work areas. Many are buying new furniture and changing office layouts or considering moves to buildings with more amenities. Others are hammering out more flexible schedules for their employees, allowing them to work from home unless they need to meet with clients or collaborate on projects with their peers.

“This is encouraging,” Kaduce said. “Employers are granting their workers more flexibility.”

Original Article Posted Here:

Still bullish on Des Moines: State of the Market participants see bright future for this Iowa city

Missed Due Diligence Items

Missed Due Diligence Items During Your Due Diligence Inspection

8 Common Due Diligence Mistakes for Multifamily Properties

Investing in multifamily real estate is exciting, and multifamily rentals have the potential to deliver huge returns. However, if you’re new to commercial real estate investments, you may benefit from some assistance during the purchasing and due diligence process — especially during property assessments.

Inspecting a multifamily asset can be time-consuming, and there are a number of potential dangers and risks that many buyers and agents miss. Working with an experienced due diligence consultant when purchasing your next property can help you avoid due diligence mistakes and protect you from costly updates and repairs.

Whether you’re working with a professional due diligence coordinator or navigating property inspections on your own, be on the lookout for these common items missing during due diligence reviews.

What Does Due Diligence Include?

Due diligence audits protect you, the new property owner, from making an investment that could cost you more than you’d profit. Before investing in commercial real estate, buyers should look at financial statements, do a market analysis, check tenant reliability and study turnover rates.

One of the most important things to do when buying a multifamily property is a thorough property inspection with professionals who know what they’re looking for. We’ll focus on a few common due diligence mistakes new multifamily investors make during their property walk-through.

8 Red Flags & Common Items Missing During Due Diligence

Pay attention to the following items during your due diligence inspection. Catching these issues before finalizing your purchase could save you thousands of dollars!

1. Faulty Electrical Outlets

Many older apartment buildings have aging wiring and electrical outlets that do not meet state and local electrical code requirements. Electrical codes are put in place to provide a regionally recognized standard for the safe installation of electrical wiring. When wiring does not comply with codes, it could pose a significant safety risk to building residents.

Lenders and insurance agents will require updates for any electrical elements that are not up to code. This can often mean rewiring the entire building, an expensive project that, while necessary to avoid potential fire risk, could negatively impact your bottom line.

Closely inspect all electrical outlets in the entire building to make sure everything is up to code. Look for things like GFCI outlets in bathrooms and kitchens, and hire a professional to investigate further. An electrician will provide specific recommendations tailored to the needs of the property and will be able to give you an estimate on the total cost of a major electrical overhaul. With this information, you’ll be better equipped to decide if the property is a wise investment.

2. Outdated Breaker Boxes

Some older apartment buildings also utilize Federal Pacific Electric (FPE) breaker panels. These breaker panels have a high potential risk for unexpected failure and are universally understood to be defective and unsafe. FPE panels are no longer used due to faulty manufacturing and risk of electrical fires.

If you see Federal Pacific Electric panels in a building, you can expect your lender or insurance agent to require you to replace each FPE electrical panel. Failure to replace FPE breaker boxes will likely lead to higher insurance premiums on the building.

Hire a professional if you’re looking at buying a building that has FPE breaker panels. An electrician can give expert guidance about replacing FPE breaker boxes, along with cost estimates. Modernizing breaker panels may be a significant investment, but it’s an important one to keep residents safe and protect the longevity of the property.

3. Cast Iron Pipes & Orangeburg Sewer Lines

Cast iron and Orangeburg pipes are two types of plumbing to look for in older buildings. Cast iron was a common material for plumbing pipes prior to 1970, and Orangeburg pipes were used in many properties built from 1945 to 1972. Both of these materials are substandard when compared with modern PVC sewer pipe structures.

Cast iron pipelines are known to rust, causing breakages or deterioration. Aging cast iron pipes can lead to sewer seepage around the property and cause massive damage and inconveniences. Orangeburg pipes are essentially made from hot tar and wood pulp, and they often deform and collapse. Hire a plumber to inspect the pipes with and find out as much as you can about the plumbing inside and around a rental property before you commit to a purchase.

4. No Water Cut-Offs

Older apartment complexes are often missing water cut-offs throughout the plumbing system. These water cut-offs are simply valves that allow water to flow from the source to the faucet, toilet, etc. These knobs allow you to easily cut off the flow of water in the case of a leak.

If a property does not have water cut-offs, you will have to turn the entire building’s water supply off in the event of a leak or a burst pipe! This is inconvenient for property managers, maintenance staff and tenants. Look for water cut-off knobs next to toilets and under sinks, and be aware of the cost associated with updating an older plumbing system.

5. Unsafe Decks, Balconies & Porches

Balconies and porches are nice amenities for residents, but they’re often not built to comply with current building code requirements. In order to protect tenants, have all balconies and porches inspected by a professional.

Common balcony and porch issues include over-spaced spindles that could possibly allow children to fall through or become stuck, unsecured or misplaced footings and more. Familiarize yourself with local building codes for decks, balconies and porches, or hire a qualified contractor to inspect these areas.

6. Check Your HVAC Inventory

Walk through each unit and inspect each HVAC system. If possible, hire a qualified HVAC contractor to walk the property with you. Getting an accurate assessment of the heating and cooling systems is essential because repairing and replacing HVAC equipment is extremely expensive. You’ll want to have a good record of which systems are in good repair and how many will need to be replaced in the coming years.

7. Sufficient Exterior Lighting

Tenants want to live at a place that is safe and well lit. New, bright lighting can also improve the property’s overall curb appeal. Drive by the property at night to look at exterior lighting and ensure the entire parking lot and common areas are lit appropriately. If possible, walk the hallways of the apartment/building to look for defective lighting.

8. Confirm Property Has Secured Access

Lighting makes tenants feel safer, but secured entrances are an essential part of building safety. Without secured entry points, anyone could enter the property, even individuals who could harm residents or vandalize property.

Providing secured access protects residents and prevents vandalism. Always check for secured access points to the building to ensure residents’ safety and quality of life, and be prepared to invest in security improvements if property entrances aren’t up to par. From keyed entrances to doors with keypads or smart locks, research what you feel is appropriate for your property.

Don’t Fall Victim to Common Items Missing During Due Diligence Reviews

Before buying your next multifamily investment, have a professional help you with a due diligence audit to make sure you’re not making any due diligence mistakes. The Katalyst Team has years of experience and has seen plenty of checks that save buyers money and common errors that have cost new buyers. Reach out to us!

Questionnaire: How to Interview a Real Estate Agent

Listing Agent Questionnaire:

1. Who are you?:

2. What company do you work for?

3. Is your company:
o Franchise:
o Corporate:
o Boutique:

4. What area of commercial real estate do you specialize in?
o Retail
o Industrial
o Office
o Multifamily
o Hospitality
o Other

5. Do you have a niche inside of that asset class? .

6. What is your geographic focus?
o Des Moines
o Northern Suburbs
o Southern Suburbs
o Western Suburbs
o Eastern Suburbs
o Central Iowa
o All of Iowa
o Other:

7. What is your average price of sales sold in the last five years?
o $500,000-$1 Million
o $1 Million – $2 Million
o $2 Million – $3 Million
o $3 Million – $3 Million
o $3 Million – $5 Million
o $5 Million+

8. What listings do you currently have on the market? .

9. How do you market your properties for sale? Please provide/check all that apply:
o Online Market Place
i. Crexi
ii. LoopNet
iii. CoStar
iv. Catalyst
v. Buildout
vi. MLS (Multiple Listings Service)
vii. Individual Website
viii. Other
o Corporate Webpage/Listing
o Direct Mailing
o Email Blast
o Prospect Calling

10. How do you do your research? What sources do you use? .

11. How do you protect my: data, financial information, lease information, tax returns, and other confidential information from buyers? .

12. What commission rate do you charge? .

13. How do you split your commission? Do you work with other agents, brokerages, offices? .

14. Do you “pocket-list” your listings? If yes, for how long? .

15. If you Do/Do-NOT split commissions can you tell me why and how that works? .

16. How big is your Prospecting (email/calling) list of owners with property similar to mine? .

17. What is your desired listing agreement time-frame? Why that amount?
o 1-3 Months
o 3-16 Months
o 6-12 Months
o 12+ Months

18. How long do you think it will take to sell my asset? .

19. How long have you been agent? .

20. How long have you specialized? .

21. How often do you communicate with me OR provide Listing Reports?
o Weekly
o Bi-Monthly
o Monthly

22. What would a successful business transaction for us look like to you? .

23. Do you currently own commercial property? If yes, please describe for me .

24. Will your properties directly compete with mine and my listing? .

25. Who are your team members?
o Assistant:
o Listing Specialists:
o Buyer Specialists:
o Underwriter:
o Marketing Agent:

26. Remarks/Other: .

des moines skyline.

Will the Commercial Real Estate Market in Des Moines Fall During Economic Uncertainty?

There’s been a lot of unknowns in the news lately, but one thing we’re sure is coming is a financial slow down. The coronavirus pandemic has caused hardships for not only local business owners, but many individuals who are currently out of a job. This lack of spending will have ripple effects in many industries, including the real estate market in Des Moines.

Many local investors in the multifamily housing market are nervous about whether or not tenants will be able to make rent payments during the upcoming economic downturn. Our market research team surveyed many local property owners to assess the current climate and project the commercial real estate trends we expect to see in the coming months. See how the commercial real estate market in Des Moines stacks up compared to national averages.

Insights From Des Moines Property Owners: The Current Multifamily Housing Market

The Katalyst Team sent a questionnaire the past two months asking questions about what local property owners experienced during the months of April and May. This data reflects how individuals may have been affected after COVID-19 precautions had been put into place, causing job losses and small businesses to shut their doors.

Are Renters Making Full Payments During Troubling Times?

Our first question to gage how the commercial real estate market in Des Moines was holding up, asked if tenants had the ability to make full monthly rent payments or not. Our survey went out in mid April and again in mid May, giving property owners additional time to accumulate payments. The results showed 67% of respondents collected over 80% of rent payments, and only 6%, or two owners, earned less than 50% of April’s rent. Even though many owners in the multifamily housing market hadn’t collected full rental fees at the time, the results were actually much better than expected for such an abrupt turn in economic activity.

how much rent was collected by des moines property owners.

The feedback we received in May was even more positive. Even with the effects of this pandemic making an impact within the Des Moines community, most residents were able to make all or most of their rental payments, and no commercial property owners were collecting less than half of rental fees at that time.

How Does This Compare to The National Average?

According to our survey, over 90% of Iowa tenants paid the majority of their lease payments. In mid-April, almost 85% of renters across the nation had made full or partial payments, down only 5% from the year before, according to the numbers from the National Multifamily Housing Council. This slight drop provides a positive outlook for the multifamily housing market thus far. Similarly, about 88% of renters across the U.S. were able to make full or partial rental payments in May. This could be a sign of a more positive outlook than what was expected, but only time will tell. Our experts are anxious to see what the upcoming months will bring as some renters potentially remain unemployed or are forced to take pay cuts during this uncertain time.

Are Property Owners Offering Any Support During This Hardship?

The second question in The Katalyst Team survey asked property owners in the April survey was if they’re offering additional services to accommodate tenants having a hard time making ends meet. The commercial real estate owners in Des Moines are showing compassion and offering waived late fees, extended leases and/or payment plans.

graph of services offered.


Predicting Commercial Real Estate Trends During an Economic Downturn

Our final question probed property owners asking how much they expect to collect in lease payments in the future. While we start to notice the effects of the global recession brought on by the COVID-19 crisis, many Des Moines property owners worry about accumulating their standard rent and the outlook of the multifamily housing market in the future.

graph of may expectations.

While many of the local commercial property owners we surveyed expected less income in May, our new results showed that local residents are still making payments during these tough economic times. We remain hopeful that Iowa residents will remain above the national average throughout this crisis.

If you’re a commercial real estate owner in Iowa, we’d love to know how you have been affected during difficult economic times. Please fill out our survey for May results.

Experts Forecast How Multifamily Housing Market Will React to the Recession

While we’ll be watching the commercial real estate market in Des Moines closely, we’re also taking a look at the bigger picture and how rental property owners will be affected in the long-term with a recession seemingly on the horizon. The biggest commercial real estate trends we can predict during a recession are:

  • Lower selling prices. With a potential of less competition in the multifamily housing market, owners looking to sell will earn less as prices for commercial properties drop.
  • Vacancy concerns. Less cash flow among consumers could result in seeking cheaper living arrangements. This will especially put Class A, or primely located and luxurious properties at risk, while Class C properties, which are older in less desirable neighborhoods, could see more demand.
  • Bad debt. If property owners aren’t collecting rent checks, it could affect their property’s net operating income and they may struggle to make mortgage payments.
  • Demand to invest local. On a positive note, sometimes recessions can boost the local market. Large investors may pull their money out of risky stocks and choose to invest in real estate, which is more reliable.

Some experts predict this recession will not be as long and drawn out as the last recession back in 2008. Rather, we’ll have a brief and brutal hit to the economy, sort of like a V- or U-shaped trend that will rebound back more quickly. If we only suffer a short period of havoc, it can help the commercial real estate industry fend off more vacancies over time.

Additionally, owners in the multifamily housing market of the commercial industry can rest more assured. According to data on commercial real estate trends from the last two recessions, multifamily properties proved to be more reliable during tough times compared to industrial and office commercial properties. Data from the last two recessions collected by CBRE shows the multifamily housing market having the shortest negative growth period and the fastest growth past the prior peak. The CBRE research brief includes helpful charts and more information about the commercial real estate trends during those times.

Looking For Guidance When Your Financial Future is Undetermined?

The Katalyst Team is always on top of the latest commercial real estate trends and is willing to share advice with our clients. If you’re wondering what outcome to expect for the commercial real estate market in Des Moines and beyond, contact our team to talk to data and research professionals today.