There is no shortage of capital searching for opportunities in commercial real estate. In most cases, this has generated high competition, compressed cap rate, and pushed asset pricing. The middle market sector—$20 million to $50 million deals—is a rare sweet spot for CRE investment. Too small for big institutions and too large for many high-net-worth individuals, the market segment offers plenty of opportunities.

The sector is also the playground for Walker & Dunlop Investment Partners, who are finding a lot of success in the sector. “The middle market happens to be the largest portion of the commercial real estate market.,” said Sam Isaacson. Isaacson is the president of Walker & Dunlop Investment Partners. “It makes up the majority of the real estate in this country. A lot of that real estate is owned by baby boomers, and a lot of them are making changes to their real estate holdings.”

Equity capital is also not interested in these investments. These players have too much capital to deploy to consider a middle-market deal. “A lot of the institutional owners of commercial real estate, like the pension funds and the endowments, have significant capital to deploy at any given time. When looking to deploy capital, they are not going to look at a $4 or $5 million check on a middle-market asset. They are focused on deploying $20 million to $25 million at a time. We see that over and over again. There is less capital chasing those middle-market deals.”

As a result, family offices and other mid-tier private investors end up transacting in the middle market space. “That isn’t to say that we don’t see competitors, but it isn’t nearly as saturated as assets that are $100 million-plus in size,” says Isaacson.

The price tag is a primary marker of a middle-market asset. However, quality of tenancy and asset functionality are also characteristics to look for in a middle-market asset. “We have been really successful at investing in the older vintage ex-manufacturing facilities in blue-collar markets in the Midwest. We have done really well at repositioning those assets into warehouse and logistics assets from some dysfunctional use. That has been really successful.” Walker & Dunlop Investment Partners is also investing in neighborhood centers with mom-and-pop ownership. “We are fairly bullish on them,” says Isaacson, adding that office is the only asset in the middle markets that the firm is eschewing. “We don’t think the COVID story has run its course.”