Two Questions Investors Should Ask
Two questions investors should ask when evaluating an investment are How is the asset performing now? and How will it perform in the future?
The world we live in today is one in which the Baby Boomers are turning 65 at a rate of 10,000 people per day (current) and by 2030 all Baby Boomers will be 65 (future). The larger Millennials and Generation Z (current) generations are, or are about to, enter an age of family development (future). The two demographics which need & utilize healthcare the most, children and seniors, will soon intersect, providing a tremendous supply of demand for Healthcare services.
Concurrently, as demand and need for Healthcare rises, the United States also finds itself in an era of an unprecedented amount of access to healthcare. In 2018, 91.5% of Americans had access to health insurance for all or part of the year. The Affordable Care Act helped insure an additional 20 million more.
In this era of disruption where large swaths of the real estate market are being disrupted by the likes of Amazon, economic swings, or an unexpected pandemic, where can the real estate investor confidently turn to? Medical buildings. Increased need for related services, needs which are essential, make a compelling case for why they savvy investor should strongly consider Medical Office Buildings (MOBs). Here is what you should know if you’re considering investing in one:
Lease Structure – Healthcare providers often will sign long-term leases (15-20 years). Why? Relocation is particularly difficult in this space, so tenants choose to stick around. As such, MOBs typically have lower vacancy rates, creating greater stability and furthering cap rate compression
Location – As with all real estate, location is critical. In order to succeed, a medical business needs to be close to a population large enough to support it. The building should be accessible and convenient to get to, and ideally near a hospital.
Demographics – In accordance with location, pay attention to demographic trends and the populations most likely to require healthcare services. Due to a combination of the weather, favorable tax laws, job growth, and affordable housing options, among others, the sunbelt states are seeing a large net-growth in population, i.e., more demand for medical services.
Building Structure – Rapid advancements in technology is creating a need for newer & more advanced buildings. Furthermore, there is a greater need for practicality & flexibility of space, of which buildings with standard room sizes and traditional layouts can accommodate. Be mindful of how many providers the building can hold, if there is space for imaging technologies and lab facilities, how many patients the waiting areas can accommodate, and if there is a possibility for expansion
IRS Extends 1031 Exchanges
On Thursday, April 9, in response to the COVID-19 pandemic, the IRS issued a notice of extension to – amongst others – 1031 exchanges deadlines. This extension applies to both the 45-day identification period, as well as the 180-day closing period and grants relief to all taxpayers, including “trusts, estates, corporations, and other non-corporate tax filers”.
1031 investors whose 45-day identification deadline falls between April 1st and July 14th will now have until July 15, 2020, to identify potential replacement properties.
Similarly, 1031 investors whose 180-day deadline falls between April 1st and July 14th of this year will have until July 15, 2020, to complete their acquisitions.
The current IRS guidance does NOT provide relief to investors whose deadlines expire prior to April 1st, or after July 15th.
Preceding the IRS’ clarification, various prominent commercial real estate organizations, trade groups, qualified intermediaries and their advisors petitioned Steve Mnuchin and the U.S. Treasury to explore such an extension. While the recent guidance is welcome news across the real estate industry, it came with no shortage of controversy. Concerns range from dissatisfaction with the relatively narrow timeline addressed, to the unclear nature in which the notice was drafted.
As capital gains, concerns and general uncertainty mount, the impact of the IRS’s guidance will be felt throughout the industry. Notwithstanding the troubling underlying market conditions, newfound loan processing burdens placed on lenders via the CARES Act, shelter-in-place orders, and the multitude of ancillary limitations experienced by many, the 1031 market has been highly stressed as both the timeline and pace of closings has slowed. While no additional update or clarification is immediately expected, many investors and advisors continue to monitor the situation, as fluid and volatile as it is, shall further guidance result.
O’Reilly Auto Parts, Still a Sound Investment
In a market segment already facing difficulties prior to Coronavirus devastation, one retailer continues to be sound investment, O’Reilly Auto Parts. With a BBB S&P rating, continued sales increases and steady stock growth, a net leased O’Reilly property serves as an ideal investment.
O’Reilly Auto Parts was founded in 1957 with a humble store in Springfield, Missouri. Since then they have had sustained growth and currently have 5,512 stores in 47 U.S. states and 21 stores in Mexico. On top of the 5,533 stores, growth has not stopped. Per their planning room webpage, there are 126 approved locations, 16 locations in bidding stage, and 47 bids under review for corporate projects alone within last 2 years. These metrics represents only a drop in the bucket as it does not take into account the hundreds of projects headed by individual developers.
For these corporate O’Reilly locations, there are between one and four contractors bidding for the work.
Per COO Jeff Shaw on an earnings call a few months ago, “Our success has been built on the foundation of the O’Reilly culture of excellent customer service, and we remain very confident in our team’s ability to seize on growth opportunities as we expand into new markets.”
Countless O’Reilly’s developers and builders have told us that O’Reilly’s corporate is good to work with and that they will build/develop as many of these as they can get leased up.
Although automotive stores have been deemed essential by the government, O’Reilly’s is still taking appropriate precaution per a notice on their website from 4/10/2020;
“As communities continue to be impacted by the coronavirus (COVID-19), O’Reilly Auto Parts wants to share with you some of the steps we are taking to protect the health and safety of our customers and our O’Reilly team members, which is always our top priority. O’Reilly Auto Parts is an essential supplier to the communities we serve, as a key resource provider ensuring consistent and effective transportation for a wide range of industries, health care providers, emergency personnel, and consumers engaged in critical tasks, as well as meeting the automotive needs of everyday customers as they use their vehicles to meet basic needs, such as trips to the pharmacy or grocery store.
The Department of Homeland Security has designated auto repair facilities and auto parts suppliers as critical infrastructure industries, which serves as a guideline for local and state governments as they establish requirements within their own communities to balance safety and wellness with the critical need to ensure essential businesses and individuals have access to repairs, parts, and supplies needed to ensure critically needed transportation.
These government orders within your area may temporarily change the way you are able to shop for auto parts and supplies, but O’Reilly Auto Parts remains committed to doing everything we can to safely provide you excellent customer service, as we all face the challenges brought on by the COVID-19 virus. You will find additional detail below about how we will strive to provide you the critical parts you need in the safest way possible, whether through a modified in-store buying experience, online at OReillyAuto.com, or a combination of both through curbside service.
In our continued pursuit to provide for the health and safety of our customers and team members, O’Reilly has taken extensive actions based upon the evolving information and recommendations concerning transmission of COVID-19 issued by the Centers for Disease Control (CDC), World Health Organization (WHO), and other public agencies.”
From a growth standpoint, we have been told of a prudent moratorium on new leases to cope with local municipality building constraints and to maintain their level of efficiency. Despite the moratorium, builders are gung-ho to continue to churn out these successful stores.
O’Reilly leased properties continue to be key targets of large real estate investors and mom and pop 1031 exchange buyers alike.
In an effort to show our support and commitment to our clients, investors and industry companies, InCommercial has compiled a list of important resources.
“If there is a silver lining to the COVID-19 pandemic, it is seeing everyone come together and support each other. It has been inspiring to witness people and companies alike using their influence for the greater good”.
– Erik Conrad, Founder & President
ILLINOIS & CHICAGO
• Chicago Business 100M Loan Fund
• Chicago Small Business Resiliency Loan Fund Information
• Chicago Small Business Resiliency Fund Interest Application
• IL Small Business Grants and Loans Assistance
• State of Illinois
• Department of Health
U.S. & STATE GOVERNMENT
• Centers for Disease Control Updates
• World Health Organization Updates
• WHO COVID-19 Situation Map
• U.S. Small Business Administration (SBA) Coronavirus Assistance
• U.S. Chamber of Commerce Small Business Guide and Checklist
• SBA Local Assistance Directory
• ICSC State Mandates Overview
• National Governors Association State Updates
• State-Specific Legislative Status
We Know Growth
At InCommerical, we know about growth, because our real estate investment portfolio just keeps on expanding. Whether you need help buying, selling, underwriting, financing, property management, filing taxes or end-to-end portfolio management, InCommercial has you covered.
We provide value and transparency during each step of the investment cycle, so you can sit back and watch your money grow. Our teams are let by top tier professionals with deep subject matter expertise and one goal in mind: to deliver superior results for our clients.
There’s a reason InCommerical is trusted all across America – we’re in the deal with you. Learn how you can grow your investment portfolio. Lets connect today.