The predominant concern for commercial real estate investors in regards to exit strategy is the downside. Ask yourself what would negatively impact the valuation of the asset during the anticipated hold period? Examples of potential adverse factors include interest rates, debt and equity capital markets, new construction, political governance, tax rates, unhappy tenants, and obsolescence.

The greatest protection against downside risks is Location, Location, Location! Target supply constrained markets, whether it is from lack of affordable land or regulatory constraints. Cities and adjacent areas that offer advantages such as international trade, mass transportation, quality schools, higher education, good government, safety, and recreational opportunities will continue to do well.

Pay reasonable prices in a great location and your investment will prosper. As we say, “a fair location at a great price will lose money and a great location at a fair price will prosper.”

Be sure to assess the pressure on interest rates when reflecting on exit valuations. Complacency on interest rates in an economic period that that has heightened potential for bond market dislocation is foolhardy.

Below are a few of the key considerations that impact commercial investment property valuations during the hold period.