The Basics
Similar to the economy in general, commercial real estate is a cyclical market. There are typically four phases to any real estate cycle:
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Recovery
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Expansion
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Hyper Supply
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Recession
The four phases move in a continuous pattern and without all four phases maturing, the market could never move to the next phase.
Why It Works
Understanding the progression of each phase within the cycle is critical in being able to identify investment opportunities, as well as risks that can arise, with heightened sensitivity when phases are on the verge of transitioning.
One of the unique aspects of commercial real estate is that investors can invest successfully across all four phases of the cycle. However, understanding whether a cycle is climbing closer to a market peak, or starting down the slippery slope towards a market low can affect a variety of factors, such as:
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Pairing investment strategy to phase
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Holding periods and exit strategies
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Return expectations
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Performance as it relates to income and appreciation
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Timing of capital improvements
Peak Capital Investments studies these cycles to get the most out of every transaction.