CONSTRUCTION SECTOR HAS BEEN EXPENSIVE… AND SLOW

While inflation may be cooling somewhat, construction prices remain high. This simple fact has big implications for real estate markets.

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It takes a long time to bring a new building to market, so today’s construction activity can tell us a lot about where the market will be years in the future. What we see today is that high labor costs are slowing down construction.

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Despite the media’s tendency to promote alarming stories of trouble on the horizon, the economy also continues to do well. Employment and GDP are strong. And given that we’re already looking at a commercial real estate market with the lowest vacancy rates in 15 years, things are looking very good for landlords.

Some real estate investors are doubtless tempted to cash in on today’s market conditions, but at Alliance, we see a huge opportunity to continue buying and holding our favorite scarce asset, medical office buildings. In a strong economy, the medical sector is even stronger, and it has proven highly resilient to market downturns.

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Alliance has a strong track record of creating win-win solutions. We love happy tenants almost as much as we love happy investors, and the two are complementary. We’re using today’s favorable market conditions to continue locking in long-term leases with high quality tenants.

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Happy in their specialized offices, our tenants are willing partners. Not only are they signing long leases, they’re also willing to accept long-term rental rate escalators while also investing their own capital in our real estate. When it comes time to renew again, we’ll repeat the process.

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In the meanwhile, our happy and successful tenants are very low maintenance. Once we sign those deals, Alliance can count on years of checks in the mail and steady returns for our investors.

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We find ways to win in any market, but these conditions have highly attractive qualities. Fewer buildings are going up, and that means our portfolio will have less competition for years to come. As specialists in our chosen niche, we have a great edge when it comes to finding the best opportunities, and we’re even better at structuring leases and managing tenants.

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The result is great returns for surprisingly modest risk. It’s a great time to be investing in medical real estate.

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