Undervalued Commercial Real Estate Assets: How to Find Hidden CRE Opportunities
Investors are increasingly hunting for hidden opportunities, and this how-to guide breaks down actionable strategies for identifying undervalued commercial real estate assets. With market volatility reshaping valuations, knowing how to spot mispriced properties can be a key to unlocking long-term gains.
What Makes a Property an Undervalued Commercial Real Estate Asset?
An undervalued commercial real estate asset is one that trades below its intrinsic or market value. These properties often have temporary challenges but long-term potential. Common signs include:
- High vacancy rates in improving submarkets
- Below-market rents with room for repositioning
- Deferred maintenance or cosmetic issues
- Zoning or regulatory opportunities
According to JLL’s 2024 Global Real Estate Perspective, value-add strategies are leading investor interest, especially in secondary markets where pricing hasn’t fully recovered post-COVID.
How to Find Undervalued Commercial Real Estate Assets
1. Analyze Submarket Trends
Look for areas with strong demographic or employment growth but lagging property performance. These often signal underappreciated potential.
2. Check Rent Rolls and Lease Terms
Properties with short-term leases, under-market rents, or mom-and-pop tenants may offer upside through improved lease structures or repositioning.
3. Evaluate Physical and Operational Conditions
A well-located asset with maintenance issues may be mispriced. Budgeting for capex improvements can create instant value through improved NOI.
4. Use Repeat-Sale and Sales Volume Data
Track repeat-sale indices like CoStar’s CCRSI to spot value divergence. When general commercial properties outperform, there may be overlooked pockets of opportunity.
For deeper insight into current investment shifts, read our article on smaller commercial real estate deals outperforming big-ticket properties.
5. Leverage Off-Market and Distressed Deals
Work with brokers, lenders, or local developers to uncover off-market opportunities. Distressed sellers may offer discounts for faster closings.
Case Example: Unlocking Value in a Tertiary Market
An investor acquired a 25,000 sq. ft. flex industrial building in Dayton, Ohio, with 60% vacancy. Rents were 15% below market, and the building needed roof repairs. After investing $400K in improvements and re-tenanting, NOI increased by 48%, and the property was reappraised at 1.6x the purchase price in under 18 months.
Why Timing Matters for Undervalued CRE Assets in 2024
As outlined in our article on smaller commercial real estate deals outperforming big-ticket properties, investor appetite is shifting toward flexible, cost-effective assets. This change in focus creates pricing inefficiencies in segments left behind, especially larger properties with temporary distress.
The Urban Land Institute also predicts continued dislocation in core property values throughout 2024, opening the door for savvy investors to acquire assets below replacement cost.
Final Tips for Finding Undervalued Commercial Real Estate Assets
- Monitor auction and foreclosure listings
- Use property tax assessments to compare value baselines
- Look for assets owned by long-term holders who may be equity-rich but motivation-poor
Undervalued commercial real estate assets aren’t broken—they’re often just overlooked. With the right tools and timing, investors can uncover strong deals others miss.
