Future of RE
With the increasing inflation numbers it is expected that the fed will increase the intrest by 75 Bps. What will be the effect of this intrest rate hikes on the RE industry. What should be the steps taken by RE gaints in order to mitigate the risks caused due to Raw material rate hikes and demand dampening due to absorption of liquidity.
I do have somethings at the back of my mind which I will be sharing as I get some clarity of thought and data.
In the meanwhile I will love the opportunity to learn from your thoughts, projections and experiences.
Let's have a lively and productive discussion.
Impacts really depends on the type of asset.
Core-Core plus SHOULD see prices drop a little, however rent growth is still strong and if buyers are still willing to make aggressive assumptions, prices will hold steady until some people start to get burned.
Value add/opportunistic- People who budgeted $50k/unit in capex 1 year ago or today will most likely be able to only get $40k of actual value in 2 years when they start renos. I have heard talk of firms that absolutely have to deploy capital willing to take negative leverage if they see positive cash flow in 16-24 months.
I only work with Multi btw.
As my own experience huge impacts of covid 19 on real estate property marketing and a lot different crisis involve. Peoples don't want to buy house because they face lot of issues like they are job less , or not affordable .In country economics real state play a important role. But now days business slow down.
Very well said.
I'm really torn at the moment. On the one hand, if I compare deals I'm looking at to everything I've seen in my (admittedly) short career, I can't make sense of almost anything. 1 and 1 no longer equal 2. But....if you think we are about to enter a period of abnormally high inflation, or inflation volatility, I really can't think of a much better thing to park your money in than cash flowing real estate (especially multi).
I am hoping to purchase a multi-unit as my first property, but what should someone look for?
Good location and bones. Can you cash flow day one? What's your time worth? Etc. The biggest pitfall I see with people and buying smaller properties is they buy something that ends up not being worth their time. I've had so many friends ask me about buying a condo and renting it out. People making $200K+ becoming a landlord to make $300/month. Definition of not worth their time.
Multifamily remains very healthy. Still seeing 20%+ trade-outs in many markets. Closing all deals out of an income fund. Home ownership costs are outpacing Rent to Income ratio growth. Institutional investors like having their money in funds heavily weighted towards multi right now.
Office owners are increasingly screwed. There was some hope we could cut the line on a few deals that have blown up by selling to regional shops looking to get in at a low basis & execute major value-add plans. Leasing is few and far between. I can tell you there will be a lot of keys going back to the lenders in the next 1-2 years — problem is, even the lenders don’t want them. Top of the market product + some suburban product will continue to be fine.
I’m not sure on hotels. Case-by-case asset class right now. Some of ours are doing really well, some aren’t. Obviously, a good short-term inflation hedge since you can mark to market daily, but I’m wary of consumer spending running out of steam. Group bookings are picking back up with business travel ~90% back. Haven’t seen the coupons on these deals, which I should look into, but I’d park my money in hotels with healthy group bookings or a wealthy transient demographic.
Industrial groups have made a killing. Only cover a few markets here, but some markets seem oversupplied + have a lack of credit tenants. Still plenty of development going on that people are excited about… There’s definitely long lead times for construction materials (switchgears are 9-12 mos), but there are still opportunities to meet the market quickly since those things seem to pop up. We have gone in unlevered on a few & plan to backlever after stabilizing.
Condos are selling like hotcakes. Consumers definitely believe mortgage rates are going to continue going up. They’re locking them in.
Prop tech firms are hurting. Some that SPAC’d are trading below their cash value…
There are some interesting opportunities in student housing for smaller shops that are getting priced out of multi deals.
Overall, it’s tough to sell right now if you aren’t cash flowing, but there’s still a lot of powder & a lot more coming.
What’s your role? Interesting that you get exposure to all of those asset classes.
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