Which of these asset classes do you think performs the best over the next 5-10 years?
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Retail strip malls?
Main asset classes it's going to be multi and industrial just like the last 10 years if I had to bet, but niche subclasses like medical office, film studios, and data centers are going to continue to do well too.
Second on multi and industrial.
I do like medical office in the near term for most markets but at the same time think in 10-15 years Medical Office will be viewed as overbuilt. At some point, improvements in telehealth technology will make significant strides forward.
Depends on precisely when you start counting but… office and retail will do best. Industrial and MF will do worst. Don’t be sheep. When real estate is in favor and expensive, subsequent performance is bad (below average). When real estate is out of favor and very cheap, subsequent performance will be better (above average). Let’s revisit in 10 years.
Where is the demand for office going to come from? Everyone going to start going back daily in droves? Unless that happens, that asset class is dead…forever.
Take the average of every answer here, and put them in exact reverse order, and you will have the actual answer.
Consensus is pretty much always wrong. Take the ULI surveys from the past and line them up with actual returns, and there is an almost perfect inverse relationship.
Agree. Return expectations almost always has a very inverse relationship with expected returns
I see what you did there
I'm just thinking of trends we are currently seeing. Bay area office for 25 c or less on the dollar for quality office sounds intriguing, but obviously high risk/high reward. Right now seeing a lot of office brokers talk about RTO but I think RTO right now is stealth layoffs. We've seen a lot of boomers/people die, retire, have other health issues and from a demographic standpoint it doesnt look like we will have enough people to replace them. When we recover from this downturn/recession would think that the power shifts to the employee again and they seem to want remote.
We are also seeing less dating/marriage and kids. Would think those dollars are then spent towards hotels/retail unless we see a reversal in those trends. Seems like a great runway from a demand perspective on sfr but so far it's been incredibly resilient and cap rates haven't expanded upwards too much. Similar with multi- great demand runway, but prices aren't where they need to be for buyers.
SFR should intertwine with BTR, but tbh its more resi with a speck of CRE UW - this industry is in a big transition mode so theres gonna be some interesting things popping out
Opportunity everywhere... just need to buy right. Wouldn't focus on a specific sector.
Probably less so asset type focused and more so yield focused. World has changed a bit and anybody relying cap rate compression or massive value add plans to drive value I think is a thing of the past. I think those that can buy stable and steadily growing cash flow yield will be big winners it’s just having the patience for those opportunities to arise as distress begins to trickle through the system (which we’re starting to see across asset types).
One thing to note that will be a big story is the drop off in multifamily deliveries that is set to begin in ‘25/‘26. Maybe a resurgence in housing inflation coincides with this. But will depend on how strong the consumer is during that period.
I think this is an intelligent take, but needs to be refined a teensy bit. "Massive value add" has two very different meanings depending on who the GP is. You've got your shitty syndicators and scammers like Tides or Rise, and their version of "value add" was always very obviously just "we're gonna slap some lipstick on a shitty Class C building, call it Class A, and hope to get bailed out by rising rents and compressing cap rates." They were doing little more than defrauding naive investors. That kind of "value add" is going to get slaughtered, as you say. Operators and sponsors who actually do drive value, because they have local knowledge or the staff to drive down expenses or something other than "rents will go up!" as a business plan, will probably do quite well in picking up distressed assets that now need actual repair work (not just paint and spackling and a 20% bump in asking rents) because they'll be in a position to execute on that with lenders who finally get wise to the fact that there is actual risk in lending to the guys who offered 5% over market and had an 18 month exit - maybe, just maybe, someone acting like they can't wait to get out of a deal isn't the best person to be lending massive amounts of money to.
Given that even with the wave of deliveries were set to see in 2024, we're still facing a massive shortage of housing in this country, one of the few things I'd bet a lot of money is that in 3 years, we'll still see a massive amount of pent up demand in most markets. Obviously I'm sure Amish Country or whatever won't be seeing a wave of demand, but you know what I mean.
I should have further specified “risk adjusted” yield. But Ozy is also correct in his additional context.
But I stand by this next period in real estate being big on yield yield yield.
Agreed that strip centers are set to perform well. Compelling supply picture, attractive yields, strong retailer tenant performance. Lots to be excited about and starting to see increased interest from institutional investors.
1, 4-6 because of RE "entrepreneurs" and demand for residential places.
I think Airbnbs/rents will be preferred to hotels and there will appear trends or new methods on how to make those Airbnbs/retns more affordable (currently those are more expensive than some hotel rooms) --> more people wanting to buy property --> more need for property --> higher prices/demand.
Because it's interesting how people tend to familiarize more and more with the idea that "markets always go up" so they don't sell even when it goes down, and instead, they keep the stocks for the long-term. So if you look at the current stock market people keep buying stocks because "in the long run they will still be profitable and increase at X%". So I think the same mindset is happening on RE that's why people don't sell.
also, aren't some ppl defaulting on their RE loans with current inflation? doesn't that prompt some fire sell-offs? (not a RE guy, just asking + giving my naive opinion) --> people again buying RE and hoping for the good times to come and then the cycle repeating itself?
the 1, 4-6 is mostly because I think that the main issue nowadays are the expensive rent prices/too much demand and development not keeping up with that demand.
The only issue i have with Airbnb/STR is for markets that don't have high barriers to entry - specific zoning etc. Unlike most of the other asset classes listed, supply can skyrocket for STR in an area in a short period of time since SFR can be utilized quickly for STR. During the pandemic, STR were being marketed as the get rick quick scheme which now seems to be imploding in low barrier markets. I'm sure the top operators are still fine but the ones dabbling in STR with a property that isnt unique are getting smoked now. Also seeing pushback from cities/neighborhoods in regards to Airbnb. The advantage of hotels vs airbnb is that the high rates are impacting hotels albeit slowly while prices haven't come down much for homes. Hard to make any Airbnb pencil atm when you have peak home prices and high rates with STR rents getting rocked due to consumer pullback.
how about storage?
I would feel best about putting my money into an apartment deal in a market I know well. Decent quality, existing multifamily in pockets of cities/neighborhoods that are desirable but have barriers to entry and lack of supply coming online. Achieve positive leverage in years 2-3 with rent growth. Buying for long term cash flow. Developers are going to be pencils down for a while.
Not really what I do or a space I would be all that interested in, but I could make a pretty good bull case for-sale housing (single-family homes, townhomes, even condos).
Multifamily could be interesting over the medium-term as maybe not being quite as frothy as people would believe. We built a bunch of apartments for Millennials, a generation that has 3-4 million more people than Gen Z. This isn't to say there's a glut coming, because I don't believe that, but is GenZ a large enough cohort to support a multifamily industry that was sized to build apartments for Millennials? I'm hungover on a plane so this might not make any sense.
I could definitely see a homebuilding deal popping the fuck off if you’re brave enough to roll the dice. You might as well be gambling though lol
I just think it's a much different business than it was pre-2008. There are lots of people in my market that were home builders (or land developers) that switched to something else after the crash. Now the market is dominated by a handful of very large, very conservative homebuilders. But you look at the demo's of this country and it is just screaming for more for-sale development over the next 10-15 years. The problem is that so many people were burned before that capital markets for the entire industry is brutal - not to mention profits are ordinary income and not capital gains.
When in doubt, buy warm weather WATERFRONT
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