Middle Market CRE Investment Is Ripe With Opportunity

Article originally posted on Globe St. on January 7, 2022

Too small for the big institutions to notice and too large for high-net worth investors, the middle market is a rare sweet spot for CRE investors.

There is no shortage of capital searching for opportunities in commercial real estate. In most cases, this has generated high competition, compressed cap rate and pushed asset pricing. The middle market sector—defined as deals valued at $20 million to $50 million—is a rare sweet spot for CRE investment. Too small for big institutions and too large for many high-net worth individuals, the market segment offers plenty of opportunity.

The middle market is also the playground for Walker & Dunlop Investment Partners, who is finding a lot of success in the sector. “The middle market happens to be the largest portion of the commercial real estate market,” Sam Isaacson, the president of Walker & Dunlop Investment Partners, tells GlobeSt.com. “It makes up the majority of the real estate in this country. A lot of that real estate is owned by baby boomers, and a lot of them are getting older and are making changes to their real estate holdings.”

As a result, family offices and other mid-tier private investors end up transacting in the middle market space. “That isn’t to say that we don’t see competitors, but it isn’t nearly as saturated as assets that are $100 million-plus in size,” says Isaacson.

While the price tag is a primary marker of a middle market asset, quality of tenancy and asset functionality are also characteristics to look for in a middle market asset. “We have been really successful at investing in the older vintage ex-manufacturing facilities in blue-collar markets in the Midwest,” says Isaacson. “We have done really well at repositioning those assets into warehouse and logistics assets from some dysfunctional use. That has been really successful.” Walker & Dunlop Investment Partners is also investing in neighborhood centers with mom-and-pop ownership. “We are fairly bullish on them,” says Isaacson, adding that office is the only asset in the middle markets that the firm is eschewing. “We don’t think the COVID story has run its course.”

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