Under the Radar: The Contrarian Case for Commercial Real Estate Is Getting Stronger

The best investments you will ever make in your entire life are those in sectors and opportunities where almost nobody else agrees with you.

The consensus holds that the asset class you are reviewing is terrible and investing there will almost certainly lead to immediate and severe loss of funds.

Right at this moment, as we survey Wall Street and Main Street, it is probably easier to find eight-year-old kids looking forward to a dinner of liver and onions with chicken gizzards and broccoli than openly enthusiastic advocates of investing in commercial real estate.

When you take an asset class this universally hated and discover that only private equity professionals truly love it, I start to get interested.

Recently, KKR & Co KKR came out and waxed poetic about opportunities in commercial real estate debt, pointing out severe price contractions. Low prices tend to bring out buyers and dealmakers, exactly what we are seeing.

John Gray at Blackstone BX has emerged as a vocal advocate, pounding the table that this is the time to be opportunistic and aggressive. Gray came up through Blackstone’s real estate division and knows these markets intimately. His firm has generated tremendous returns for themselves and investors in commercial real estate.

When the best minds in private equity begin to pick at and nibble around a sector, it is generally time to start getting interested.

When I examine commercial real estate, offices immediately come to mind. The conventional wisdom holds that offices are empty, and nobody will ever work in them again. People envision office space as something from a post-apocalyptic movie.

In a word, bleak.

The forecast appears terrible.

Workers want to stay home in their sweatpants with dress shirts and ties for Zoom ZM calls.

That paradigm is shifting. We have completed our work-from-home experiment. The office decline is beginning to ebb, stabilizing at a new, lower baseline.

Across the country, return-to-work policies are emerging. Financial services led the charge. The federal government has made it official policy. State and local governments are following suit.

Artificial intelligence companies are mandating office returns, recognizing that breakthrough innovation requires massive collaborative efforts that demand physical presence.

Return-to-work mandates represent just one factor.

Construction has virtually stopped. Even developers interested in office construction cannot secure financing for new projects.

According to a recent CBRE Group CBRE report, the math has fundamentally shifted. The combined number of office conversions, to life science buildings, medical facilities, condominiums, and residential buildings, plus outright demolitions exceeds new supply coming to market in many U.S. markets.

We are witnessing the creation of a supply-constrained office market, particularly for Class A space where everyone wants to locate.

Within just a few years, we will face a supply-and-demand imbalance resulting in an actual shortage of high-end Class A office space.

This trend is emerging everywhere, even in battered markets like San Francisco. There, AI-related office space has grown fivefold over recent years and is projected to triple again over the next five years.

 Demand is building while new supply remains nonexistent. Office real estate is beginning to improve, yet nobody is paying attention.

For three to four years running, I have heard predictions that multifamily real estate will collapse. These forecasts began with the initial post-pandemic surge that elevated multifamily values.

The reality is we face a massive affordability crisis in residential real estate. Three factors have created a perfect storm: older homeowners with no intention of moving, persistently high mortgage rates, and builders correctly focused on higher-margin market segments.

This combination has eliminated supply at the market’s lower end.

Estimates of the housing shortage range from two million to six million units, with the true number likely between four and five million.

We face an absolute shortage of new single-family and attached homes (think townhouses rather than condominiums).

Substantial new supply will not come online until older homeowners who own much of existing inventory either pass away or are convinced by their children to relocate. Something must break this logjam.

The mathematics are stark: older homeowners hold mortgages below four percent, creating zero incentive to sell and generate new inventory.

New construction requires tax and economic incentives to make first-time and move-up home building financially viable for developers. That relief remains distant.

The Mortgage Brokers Association forecasts no significant pickup in single-family housing activity over the next several years, nor any meaningful decline in mortgage rates.

Paradoxically, if mortgage rates do fall meaningfully, it will signal that economic activity has ground to a halt, creating different affordability problems entirely.

This dynamic sustains strong multifamily demand. An entire demographic cohort that would typically have purchased homes remains trapped in apartments.

These demographic shifts are creating apartment demand surges. The substantial building wave over recent years to meet post-COVID demand filled immediately upon completion. Construction is decelerating as financing becomes more selective. Lenders will only finance the best apartment complexes in the hottest, highest-end markets.

This pullback makes multifamily commercial real estate particularly attractive, especially if acquired during broader market sell-offs.

Logistics and industrial real estate has emerged as the hottest market, driven by global supply chain restructuring and e-commerce growth. Warehousing has migrated from central districts to locations closer to cities and towns.

 Currently, everyone is holding their breath over trade uncertainties and their potential impact on global logistics and supply chains.

This too shall pass.

The underlying demand remains robust. While we experienced a supply surge as supply chains were remade following early COVID disruptions, that wave is now ebbing.

Demand has remained strong, existing supply is filling up, and occupancy rates are very high. The outlook for industrial and logistics real estate remains very positive.

Retail properties present a bifurcated market similar to office real estate. Second and third-tier malls are finished, destined for the dustbin of history. However, Class A malls with premier tenants, exceptional entertainment and dining options, and high-end retail remain fantastic businesses.

Outlet malls continue to thrive.

Open-air centers that are internet-resistant featuring grocery stores, gyms, medical offices, and pharmacies are performing exceptionally well.

Single-tenant net lease retail properties represent another compelling opportunity. These include WalgreensWBA, Starbucks SBUX, Home Depot HD, Walmart WMT, McDonald’s MCD, Burger King QSR, and other standalone businesses.

When you examine the four corners of any major city intersection, those corner buildings typically house net lease, single-tenant real estate. This is one of my favorite segments of the real estate market and a fantastic business model.

Most commercial real estate sectors are performing well. The only serious problems have been concentrated in downtown office buildings, and even there, the combination of constrained new supply, return-to-work mandates, conversions, and demolitions is generating meaningful market improvement.

This presents an opportune time to consider commercial real estate investments: direct property ownership, commercial real estate companies, servicing companies, and non-REIT companies that own real estate assets. Real opportunity exists here because no one on Wall Street that I am aware of is advocating for commercial real estate and commercial real estate services. Numerous companies are flying well under the radar, potentially offering huge long-term returns for patient, aggressive investors willing to step into the liver and onions of current financial markets.

FRP Holdings FRPH embodies everything I discussed about commercial real estate opportunities. This Jacksonville, Florida-based holding company operates across four distinct segments that perfectly capture the themes I believe are driving the commercial real estate renaissance: Industrial and Commercial properties, Mining Royalty Lands, Development, and Multifamily residential.

The crown jewel of FRP Holding’s portfolio remains largely invisible to most investors.

It is approximately 16,650 acres under lease for mining rents or royalties and an additional 4,280 acres through its Brooksville joint venture with Vulcan Materials. These properties contain reserves totaling over 500 million tons, representing decades of steady cash flow.

I find the mining segment particularly attractive because it brings in approximately $10 million annually in revenue with roughly 90% free cash flow margin, generating $9 million in free cash flow.

Think about that mathematics for a moment.  

This represents the purest form of real estate investment, land that generates income without the headaches of tenant management, building maintenance, or capital expenditure cycles. The mining royalty business provides FRP Holdings with a steady foundation of cash flow that supports their more aggressive development activities.

I also like FRP Holding’s multifamily portfolio concentration in the Washington D.C. market, exactly where I want exposure as a real estate investor. D.C. is fairly recession-resistant since the federal government is the biggest employer in the area.

The company owns interests in multiple apartment complexes including Dock 79, The Maren, The Verge, Bryant Street, and .408 Jackson through joint ventures.

The strategic positioning becomes clear when you examine FRP Holding’s development pipeline. The company has executed an agreement with Steuart Investment Company and MidAtlantic Realty Partners for the development of up to ten mixed-use projects in the Capitol Riverfront and Buzzard Point submarkets of Washington, D.C.

 Upon completion and stabilization, these projects will comprise over 3 million square feet of mixed-use development including 3,000 residential units and 150,000 square feet of retail.

I see FRP Holding’s industrial segment perfectly capturing the trends I discussed earlier about logistics and warehousing demand.

The company entered into two new joint venture agreements in early 2024 with Altman Logistics. The first joint venture is a 200,000 square-foot warehouse development project in Lakeland, FL, and the second joint venture is a 182,000 square-foot warehouse redevelopment project in Broward County, FL.

Shell construction on their spec warehouse project in Aberdeen, MD on Chelsea Road was completed effective April 1, 2025, and is in the lease-up phase.

 This 258,000 square-foot industrial asset in Harford County, Maryland represents exactly the type of modern logistics facility that companies need as they restructure supply chains closer to population centers.

I find the company’s industrial strategy particularly well-timed. FRP Holding aims to double its industrial segment over five years by delivering three new industrial assets every two years.

This aggressive expansion targets markets where demand for modern warehouse and distribution facilities continues growing while new supply remains constrained.

One of the most compelling aspects of FRP Holdings that involves its ownership structure and management alignment. The Baker family owns approximately 35% of the company, with the CEO owning 14.8% and other family members owning an additional 20.8%.

Company CEO John Baker is the largest shareholder with 15% of shares outstanding.

This represents serious skin in the game.

 When management owns more than one-third of the business, their interests align perfectly with my interests as an outside shareholder.

The Baker family has shown that they are willing to sell if the right offer presents itself, which creates substantial shareholder value.

They have also demonstrated disciplined capital allocation, evidenced by the company repurchasing $20 million of shares during the pandemic below NAV.

I see FRP Holding’s development pipeline providing multiple catalysts for future growth. In 2025, the company anticipates moving forward with two multifamily projects outside the DC area, one in South Carolina and the other in southwest Florida.

The company’s development expertise spans nearly four decades. Through its subsidiaries, FRP Development Corp & Florida Rock Properties, Inc., FRP Holdings has nearly 40 years of development experience.

Several factors contribute to FRP Holding’s relative obscurity among investors, which I view as an opportunity. FRP Holdings is covered by 4 analysts, with 0 of those analysts submitting estimates of revenue or earnings used as inputs to reports. The company operates in unfashionable sectors, mining royalties, apartment buildings, and warehouses, rather than the technology or growth companies that capture headlines.

FRPH does not currently pay a dividend, which eliminates income-focused investors from the shareholder base.

The company’s complex structure across multiple real estate segments requires more analysis than most investors want to undertake. This complexity creates the opportunity for those of us willing to do the work.

I believe FRP Holdings represents everything attractive about the commercial real estate opportunity I described. The company combines steady cash flows from mining royalties, growth potential from industrial development, and strategic positioning in recession-resistant Washington D.C. multifamily markets.

Management owns more than one-third of the business and has demonstrated disciplined capital allocation over decades.

This combination of quality assets, aligned management, and market neglect creates exactly the type of contrarian opportunity that I believe patient investors should embrace.

For investors willing to step into the liver and onions of today’s financial markets, I see FRP Holdings offering compelling exposure to the commercial real estate renaissance that nobody wants to discuss. The best investments you will ever make are those where almost nobody else agrees with you, and right here, almost nobody is paying attention to FRP Holdings.