Max Freedman, Managing Partner
U.S. commercial real estate (CRE) activity is projected to reach $562 billion in 2026, a 16% increase year-over-year. Meanwhile, cap rates are expected to compress by only 5 to 15 basis points. These figures signal a more active market, but one where returns will depend heavily on careful asset selection, making risk evaluation critical for investors comparing opportunities.
Many factors go into evaluating CRE risk. Tenant credit, purchase basis, asset quality, lot size, demographics, and traffic counts can all influence an asset’s risk profile, and every investor will weigh those factors differently based on their own risk tolerance. At Sands Investment Group (SIG), we take a specialized, advisor-led approach to assessing risk. Rather than looking at a deal in isolation, we first work with our clients to understand their property criteria and investment objectives. Then, we use our product-specific expertise to contextualize each opportunity within the larger CRE market.
Starting With Education
When an investor approaches our team at SIG, we begin by establishing market context. That includes the geographies and sectors an investor could enter, the tenants within those sectors and the advantages and disadvantages of each option. We take this approach because, to evaluate risk effectively, investors need a baseline understanding of the broader market. For example, an investor evaluating a single submarket without comparing nearby pricing, inventory and demand trends may have a limited view of whether an opportunity is competitively positioned. However, if they widen their scope to include a slightly larger market area, they’ll quickly become familiar with local pricing and inventory trends.
In the same way, CRE investors need enough market context to recognize how one opportunity compares with another. Once we have established that context and clarified the investor’s goals, we turn to their risk profile.
A Framework for Measuring Risk
Risk can be difficult to interpret when discussed only in qualitative terms. To translate risk-related metrics into a tangible framework, our advisors develop a unique risk scorecard for each investor. The scorecard is customized to reflect how a client weighs different risk categories such as tenant credit, lease terms, traffic counts and local demographics. Once we’ve established how these priorities play out for an individual investor, the scorecard provides a consistent framework for evaluating opportunities. If a deal scores a 50 out of 100, it may not be the right fit. On the other hand, if it scores a 90, it is likely worth exploring.
The scorecard is just one element of the process and is no substitute for an advisor’s experience and judgment. However, when paired with our advisors’ market and product-type expertise, it gives investors a simple way to compare deals and understand why one opportunity may better align with their risk profile than another.
Building a Team of Asset-Class Specialists
One advantage of working with SIG is our team of advisors with deep expertise across specific commercial real estate asset classes. For example, if an investor is reviewing a quick-service restaurant (QSR) deal, the tenant’s sales figures need to be interpreted in the context of the broader market. An advisor who specializes in QSR can assess whether those sales figures are strong for the location and store format when compared with similar deals.
That product-specific perspective is also valuable when a risk factor cuts across the market. For instance, in the current economy, leverage is an important indicator of tenant-level risk. Interest rates have risen significantly over the last four years. If a tenant has upcoming maturities, those higher rates could materially increase its debt burden. Because SIG advisors have product-specific expertise, they are better positioned to evaluate how market pressures like these may affect a tenant, operator or deal.
Guidance Through the Investment Lifecycle
As an investor moves from acquisition to ownership, the role of our advisors shifts with them. Early on, the advisor–investor relationship typically centers on buy-side guidance. Later, the focus may turn to the investor’s exit strategy. When clients are considering an exit or reinvestment, our advisors can walk them through the timing considerations that will affect when and how they redeploy capital. As that work continues, the questions investors bring us often become more strategic. Investors may move from evaluating a specific asset to asking, at a high level, where we see potential in the market.
At every stage of the advisor–investor relationship, risk needs to be evaluated within the scope of the broader market. Local conditions, tenant performance and sector- or market-wide trends can all change an asset’s risk profile. A seasoned advisor brings the experience and perspective needed to interpret and navigate those shifts, empowering investors to make informed decisions that support their long-term investment strategy.
Connect with a SIG Advisor to explore your personal risk profile and identify CRE opportunities that align with your goals.
