Why SF Investors Should Diversify Into New Markets This Year
Although there is still opportunity in the Bay Area, investors might reach investment goals faster by looking in new markets.
San Francisco investors might find better opportunities outside of their home base this year. While there is still opportunity in some market segments, like multifamily, investors are more likely to reach investment goals by expanding into new and rapidly growing markets. Marcus & Millichap’s Levin Johnston brokerage group advised clients through this strategy this year, brokering more than $160 million in deals from the fourth quarter of 2020 to date.
“Many of our clients have been focused on investments in Northern California, which is our geographic area of specialty,” Robert Johnston, senior managing director at Marcus & Millichap, tells GlobeSt.com. “While this region, and the Bay Area in particular, remains a strong market for multifamily investment, there is pent-up demand for deals; therefore, it behooves investors to consider going outside the box into different markets where they might be able to reach their investment goals more readily.”
The group is advising clients to look at a broad range of investment assets, and it is finding success. One example is the sale of a Walgreens in New Mexico. “This has proven to be a smart strategy for many of our clients. “We recently represented the seller, a California-based private investor, in arranging the $6 million sale of a net-leased Walgreens drug store in Albuquerque, New Mexico, marking our team’s initial foray into this market. The transaction was one of several we arranged in markets outside of California—with favorable results for our clients,” says Johnston.
Texas is another top market for investment outside of California, and the team has expertise in both markets. “Although our main focus is Northern California, we have experience in helping clients strategically expand into other markets like Texas and New Mexico to diversify geographically and provide them with more options for different types of investments. Diversification is generally a smart strategy when it comes to any investment portfolio, and real estate is no exception,” says Johnston.
Diversification into new markets isn’t a sign of sinking investment in California. However, opportunities in the market are limited and investment can be challenging. In addition, other markets can provide investors business-friendly benefits. “As California remains a desirable market and available deals are scarce, moving into different markets is worth considering,” says Johnston. “While we don’t usually advise our clients to leave the state completely, there are many advantages to exploring other markets.”
The Walgreens transaction is a prime example of the business-friendly benefits. “The deal made sense for our client because income and sales taxes are lower in New Mexico than in California, employment trends are strong, New Mexico is one of the top destinations for people to move to, and it’s a pro-growth state for development,” says Johnston.