“Buy below replacement cost.” It’s a phrase often repeated in commercial real estate. But too often, it’s misunderstood as simply “buy cheap.” In reality, below replacement cost acquisitions represent one of the most important long-term strategies for protecting and compounding capital.
Why It Matters
Replacement cost refers to what it would take to rebuild the same property today. When you buy below replacement cost, you create structural advantages:
- Tenants are less likely to relocate, as a new building would likely demand higher rents.
- You reduce competition from new supply.
- Even in downturns, your asset retains relative value against newer builds.
Institutional Discipline
Institutional investors prioritize this metric because it provides downside protection. In uncertain cycles, owning assets where tenants are effectively “locked in” by economics creates significant stability.
Sentinel’s Approach
At Sentinel, acquiring below replacement cost isn’t opportunism — it’s part of disciplined underwriting. Combined with long-term leases and institutional tenants, it allows us to build portfolios with resilience baked in from day one.
The Takeaway
For private investors, understanding why below replacement cost matters is critical. It’s not about bargain hunting — it’s about creating a structural advantage that compounds over decades.
