Real estate investors tend to be a traditional bunch. Scorning the hustle and bustle of stock trading, they often feel that their chosen market is a slower moving, more mature, more elegant sort of business. Well, that might be about to change.
That’s because of 5G technology – the next generation of mobile network. This technology is poised to deliver blistering speeds to consumers, but it might also be poised to give major headaches to real estate investors and to invoke massive chances to the process of buying an investment property or buying a rental property. It may also affect investment loans and investment property financing. This is particularly true of those who own equity and manage commercial property, though it applies to almost any real estate investor.
In this article, we’ll explain how 5G will affect real estate with focus on the commercial market and how best to prepare your assets for this transformation.
Managing the 5G Shift
If you work in real estate investing, you might not be up to speed with exactly how 5G works, so let us provide a short introduction.
5G has many pros. It is the next generation (after 4G, and before that 3G) of cell networks. The central promise of 5G is that it will deliver faster data transfer speeds than ever before, ushering in a new world of completely networked Internet of Things (IoT) infrastructure.
But here’s the rub: 5G antennas have a smaller range than 4G antennas, and 5G signals are less able to penetrate buildings. Because of this, in order to make a 5G network effective, engineers have to deploy many more antennas than the current practice. These antennas can be smaller than their 4G counterparts, but often need to be installed within commercial buildings.
This represents something of a paradigm shift for commercial landlords. Up until now, tenants have generally taken full responsibility for installing and maintaining telecom equipment within commercial buildings. As internal 5G antennas become standard, commercial property investors can expect to be faced with the formidable challenge of maintaining and securing complex telecom networks.
The Future of Real Estate Investment
In turn, this shift of emphasis is likely to have residual effects on other forms of real estate investing. This is because different types of property investment are linked together through financial instruments, which is why you need to understand what is cross collateralization, whether cross collateralization is good, and how cross collateralization agreements work.
In order to understand these cons, it’s useful to consider what happened when telephone lines were added to private homes in the US in the early part of last century. Like 5G antennas, and unlike previous cell phone technologies, telephonic infrastructure required that equipment be installed directly inside properties. This meant that the home and other property values which had already been fitted with this equipment were higher than those that weren’t.
A similar type of situation is set to occur in relation to 5G. Some analysts point out that 5G represents far more than just an iterative improvement over previous cell networks – instead, in a world where 51% of all internet traffic is now mobile, it represents a new era of communication technologies.
It’s likely, therefore, that the real estate prices will come to be impacted (if not determined) by a property’s level of 5G connectivity as one of the leading real estate technology trends for much of the next decade. This will be particularly important for commercial real estate as well buildings used for manufacturing and production, but the level of 5G connectivity is also likely to be a factor in residential rental property sales as well as negotiations as part of a second mortgage. This will affect real estate investment loans, cross collateral loans, cross collateral mortgages, and investment property mortgage rates.
Unfortunately for investors, it may be difficult to predict the 5G connectivity of a particular investment property in advance. Access to this kind of local knowledge is, of course, one of the benefits of hiring a real estate agent, but the nature of the 5G network may also mean that investors and landlords will need to develop extra expertise – on top of the ability to identify and manage a profitable building – they will need to manage a communications network as well.
The Timeline
Thankfully, the real estate industry has time to adjust to this shift. Though in 2021 some 5G networks are already available in the US and Europe, most experts predict that we won’t see widespread adoption of this standard for another few years.
It is crucial, however, that real estate investors don’t waste this lead time. If you own or manage commercial real estate including multifamily syndication, now is the time to commission an assessment of the likely strength of 5G networks for it and how you will improve connectivity if needed. Others are already doing so. Million Acres reports, for instance, that many leading REITs are already installing 5G antennas in their buildings and other infrastructure investments.
Alongside this technical preparation, investors and managers may also need to undertake extra training in order to manage client expectations of 5G connectivity. It might be that this connectivity will be an important part of the offer to clients in the next few years. Salespeople (in particular) need to be able to discuss the intricacies of it in order to be effective.
Finally, it will also be important that landlords understand their liability and their credit score when it comes to the networks they provide. Adding 5G connectivity is not as simple as merely erecting an antenna – in principle, investors are also responsible for all of the data that passes through these devices, and may be legally responsible for their misuse. Because of this, client agreements may need to be re-drafted.
The Bottom Line
Ultimately, real estate investors will adjust to the advent of 5G, just as they have recently adapted to the impact of the Covid-19 pandemic on commercial real estate in 2021, and as they adapted to the invention of the telephone many years ago. In addition, this is one more point of proof, if any were needed, that commercial real estate investing isn’t for beginners.
That said, it’s important for responsible real estate property owners and property managers to take steps now to assess the likely relationship between 5G and real estate investment strategies, clients, and physical assets. Failure to do so could cost them dear in the short to medium term.
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