BPM Real Estate Insights: Spring 2018 Volume 01 | Page 8

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BPM Real Estate Insights
Real Estate Executive, Tom Engberg,
Shares 2018 Trends
By Jackie Matsumura
E
arlier this year, we had a chance to catch up with
Tom Engberg, the CEO of Loja Real Estate, LLC.
The private equity real estate company based out of
the East Bay is one of BPM’s real estate clients, specializing
in shopping center investment. Below is a summary of the
interview and a few of Tom’s thoughts on the real estate
industry coming into 2018.
How Do You See the Overall Real
Estate Industry at the Moment?
Well, first of all, I tend not to think of the real estate
“industry” as a monolithic thing. Real estate is made up of
many subsets and lives in many geographies and movements
in these subsets and geographies are not often in parallel.
That said, there are indeed macroeconomic factors that affect
all real estate sectors, rising or lowering tides that can raise or
lower all real estate boats. Job growth and interest rates are
two, by way of example.
At the risk of overgeneralization, it is my sense that most
sectors of the commercial real estate business are presently
fully priced. I think this is true primarily for two reasons.
One, fundamentals are solid across most sectors, with some
exceptions I will mention later, and, two, there is clearly a
flood of capital in the markets holding cap rates down for
quality assets and values up. This is especially true in places
like the Bay Area where supply is limited, demand seems
infinite (it is not) and investment risk is therefore viewed as
very, very low.
Are There Any Clouds on the Horizon
for Any Sector?
Let’s talk first about where the skies are clear. The strongest
commercial real estate sector in most markets right now is
industrial. Growth in the sector is driven by what you would
expect, namely, the tidal wave of growth in e-commerce, led
by Amazon, and the need for warehouse facilities and logistics
operations to support it. I was at a conference recently and
heard about cap rates for single-tenant industrial properties
in the 4s and even 3s in some instances. That stratosphere
has heretofore only been occupied by the apartment sector.
People think that Amazon is taking over the world, and it
may very well one day, but right now internet sales represent
only approximately 11% of total retail sales in America. That
means there is a lot of room to grow, which is good news for
the industrial sector and to some extent, bad news for bricks
and mortar retail.