Allegiancy Q&A with CoStar: CEO Steve Sadler shares insights on commercial real estate opportunities and risks in today’s market

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Allegiancy CEO Steve Sadler recently spoke with CoStar reporter Mark Heschmeyer about risk and reward in today’s commercial real estate middle market.

Allegiancy CEO Steve Sadler recently spoke with CoStar reporter Mark Heschmeyer about risk and reward in today’s commercial real estate middle market.

"The year 2007 still casts a long shadow over today’s commercial real estate market," CoStar wrote. "Nearly every discussion among commercial real estate pros involving cap rates, investment sales volume, price/square foot, loan underwriting, vacancy, etc. ties today’s values back to the previous market peak, just before it all collapsed after the bubble in housing values burst. As we enter the final quarter of 2014, it’s inevitable that current stats, which now approach or exceed the 2006-2007 numbers, are placed side-by-side as a cautionary legend warning that the end of this run-up may be nigh. In Icarus fashion, it’s as if some believe transaction volumes, values and yields collapsed because they got too high."

COSTAR: It seems that we are well past recovery in the commercial real estate marketplace and may be approaching the previous peaks of 2006-2007. That raises some questions: How much higher can commercial real estate pricing and deal volume go considering how late in the cycle we seem to be?

STEVE SADLER: "There continues to be a real bifurcation in the market, with gateway cities far outpacing secondary and tertiary markets in price recovery. Additionally, in many markets, we are only just now beginning to see any real uptick in rents received by landlords on new leases. So I think there is certainly room for asset value to move to the upside, particularly in secondary markets.

Naturally capitalization rate compression has its limits and is impacted by the interest rate climate, Federal Reserve policy, quantitative easing, and the like, but the real estate fundamentals are still improving in the vast majority of U.S. cities."

COSTAR: Are investors chasing yield based on appreciation, or on operating and market fundamentals, and what evidence is there of which it is?

STEVE SADLER: "At Allegiancy, we are focused on secondary markets, and the activity we see is based far more on operating incomes and cash flows, along with improving market fundamentals. Surely there are value-add opportunities in which asset appreciation is a part of the equation, but generally we are not seeing investors come into our markets making cap rate compression plays when asset appreciation is critical to their success."

COSTAR: One of the biggest shifts we have seen is the amount of capital flooding into the secondary and even tertiary markets. Are there yields there worth chasing, or is the competition for deals dragging down yields, and why?

STEVE SADLER: "Competition for these assets is certain to have an impact on realized prices and yields. With most markets experiencing supply constraint – that is, we’ve seen little construction for the past 5 years and numerous zombie buildings that became functionally obsolete during that period. We’ve also seen recent increases in leasing activity, and improving rates do make it possible for investors to get solid returns despite the increase in pricing.

There are definitely transactions worth pursuing and attractive returns available, … but caution is always a good idea in evaluating the risks to the downside. Secondary markets, in our view, are very attractive right now, … but a wise investor also recognizes that liquidity in these markets is not as good. So that should all be taken into account."

COSTAR: What markets or property types are still worth pursuing that may not be as far along in the cycle and why?

STEVE SADLER: "Our view is that multi-family is fully valued and in many cases overvalued, particularly in light of all the new construction coming on-line in the near term.

Selected port cities offer attractive opportunities in the industrial and warehouse asset class, but we are very skittish about retail. Retail is really seeing stress in the B & C class assets, and anything but grocery-anchored (and only by a No. 1 or No. 2 grocer) or class A destination retail seems vulnerable to negative dynamics, including technology-driven Internet retailing.

We continue to see value in office and more particularly multi-tenant office in secondary markets where the fundamentals are strong."

Allegiancy leadership is available to speak on these and other topics related to small business growth and commercial real estate asset management.

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About Allegiancy

Allegiancy is changing the business of asset management for commercial real estate owners and investors. With an advanced technology platform and singular focus on serving as the owners’ advocate, the company brings fresh vigor to an often poorly understood business. Combining its proactive Value Assurance? operational rigor with an intense focus on cash flow and profitability, Allegiancy is expanding on a track record of more than four decades of success.

Headquartered in Richmond, Va., and led by a team of seasoned professionals and more than 100 years of experience, Allegiancy manages properties that have outperformed their peers by 45% since 2006. The company has more than $300 million in assets under management (AUM) and delivers clients attractive returns and profitable, hassle-free investments in commercial real estate.

More information about Allegiancy may be found at

To schedule an interview with Allegiancy’s leadership, contact Audrey Bevel at or 866.842.7545 ext. 204.


Based in Washington, D.C., CoStar is in the business of equipping clients with what they need to succeed. The company creates opportunity through a combination of reliable tools, resources, and deep understanding on over 4.5 million commercial real estate properties in today’s market. For more information, visit

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This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are based upon the Allegiancy, LLC’s (the “Company”) present expectations, but these statements are not guaranteed to occur. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. Investors should not place undue reliance upon forward-looking statements. For further discussion of the factors that could affect outcomes, please refer to the “Risk Factors” section of the offering circular dated January 14, 2014 and filed by the Company with the U.S. Securities and Exchange Commission on January 15, 2014. The offering circular, and any supplements or updates thereto, is available on the EDGAR system located on

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