When investors come into our office to discuss their investment criteria, we often ask if they are targeting specific submarkets. Almost without exception, the answers are Uptown, Preston Center, and along the Tollway up to Legacy. Both geographically and metaphorically, we refer to this as the “middle of the fairway.” Everyone, it seems, likes to play from the middle of the fairway –and with good reason.
In golf, the middle of the fairway has the best quality grass, the best views, is easy to get to, and provides the best lie for your ball. In real estate parlance, this analogy translates to the best buildings, the best fundamentals, proximity to high-end residential areas, and the least amount of risk.
As a result of high demand, the middle of the fairway is very crowded. There is an abundance of capital chasing a limited number of deals, which has resulted in significant pricing increases along the coveted corridor. I am not suggesting these price increases are not warranted; I believe they are. The fundamentals along the middle of the fairway are better than ever. But, I am suggesting that great opportunities are available from the fringe.
On a comparative basis, the average price-per-square-foot differential between the fairway and the fringe is now over $100 per square foot. Going-in yields are 200 basis points fatter along the fringe. And the best news: the strong fundamentals are now permeating into the fringe. This means that B-quality properties, older stock, and buildings located in non-core submarkets are posed to gain the most over the next two years, creating a favorable and opportune time to shift investment strategies to include higher risk and higher reward alternatives.
After all, some of the greatest and most memorable golf shots of all time have been made from the fringe! Just ask Bubba Watson, Tiger Woods, Paul Azinger, or Phil Mickelson.
