Each month the EquityMultiple Team compiles and weighs in on the 5 trends in real estate investing that you need to know. Questions? Don’t hesitate to reach out to ir@equitymultiple.com
March 14th, 2025
1. DISTRESSED OFFICE INVESTORS BET BIG
One of the most successful investors in distressed retail real estate—who previously made significant gains by acquiring and repositioning zombie malls—is now placing a major bet on empty office buildings. The strategy mirrors past success in retail, focusing on deeply discounted assets in secondary markets with high upside potential. These investors believe that selective repositioning, creative leasing strategies, and adaptive reuse will unlock long-term value.
This contrarian bet is not without risks. The fundamentals of office demand remain uncertain, with hybrid work arrangements continuing to shape occupancy trends. However, opportunistic capital is stepping in, particularly in cases where assets can be acquired below replacement cost. Investors with experience in turnaround strategies may find compelling opportunities in properties ripe for mixed-use conversion or alternative uses, including residential, life sciences, or education facilities. Our latest Vantage Point offers our perspective on office investments in the current market.
2. TRADE WAR ESCALATES
The United States has officially imposed new tariffs on Canadian and Mexican goods, triggering immediate retaliatory measures from both countries. The latest round of trade restrictions follows months of rising tensions as President Trump aims to renegotiate trade agreements and reduce dependence on foreign imports. Key industries affected include automobiles, agriculture, and consumer goods, with supply chain disruptions expected to ripple across North America. Canada and Mexico both have responded with retaliatory tariffs.
For commercial real estate investors, industrial and logistics properties could see increased volatility, particularly those reliant on cross-border trade. Companies operating near key port and border logistics hubs, such as Laredo, Texas, and Detroit, Michigan, may need to restructure operations to manage higher costs. Meanwhile, foreign direct investment into U.S. CRE could slow as international uncertainty grows. Investors should monitor the long-term implications of trade disputes on tenant stability, supply chain adjustments, and economic growth.
3. FEDERAL PROPERTY SELL-OFF PROPOSED
The Trump administration has unveiled plans to sell off 443 federally owned properties across the United States, citing the need to cut maintenance costs and shrink the federal real estate footprint. The move is part of a broader strategy to reduce government expenditures and shift to leased private market spaces instead of owned assets. High-profile properties on the chopping block include government office buildings in Washington, D.C., New York, and Chicago, as well as underutilized federal campuses in secondary markets.
For CRE investors, this represents a once-in-a-generation opportunity to acquire prime real estate at potential discounts. However, challenges remain, including the bureaucratic complexity of government asset sales, zoning restrictions, and potential oversupply in certain office markets. The extent of investor demand will likely depend on how the General Services Administration (GSA) structures the bidding process and whether private buyers can reposition assets for modern uses, such as mixed-use conversions or data centers.
4. $2 BILLION FOR AI DATA CENTER
Developers have successfully secured a $2 billion construction loan to build a 100-acre AI-focused data center campus in West Jordan, Utah. As artificial intelligence models require exponentially more processing power, data center developers are racing to expand infrastructure capable of handling high-density workloads and cooling requirements. The new facility is expected to feature next-generation liquid cooling technology and ultra-high-speed fiber connections, making it a premier location for AI-driven companies and cloud providers.
This deal signals growing institutional interest in digital infrastructure assets. The demand for data centers continues to outpace supply, leading investors to view them as a resilient and high-growth sector within commercial real estate. As traditional office space faces headwinds, many institutional investors are pivoting toward alternative asset classes, including logistics, life sciences, and digital infrastructure. CRE investors should monitor data center investments as a key component of modernizing portfolios to align with long-term technological trends.
5. LIFE SCIENCES POISED FOR A REBOUND
After a period of slowing investment, the life sciences real estate sector is showing early signs of a comeback. Reduced new construction, coupled with increasing demand from biotech and pharmaceutical firms, has set the stage for a rebound in lab space absorption and rent growth. Over the past year, venture capital funding for life sciences firms has stabilized, leading to renewed leasing activity in major research hubs such as Boston, San Diego, and Raleigh-Durham.
For investors, this rebound represents a shift from the overheated expansion phase seen in 2021-2022, when speculative development outpaced demand. Moving forward, selective investment in well-located lab spaces with strong tenant demand will be key. Markets with strong university and medical research anchors are expected to recover the fastest, while secondary life sciences hubs may take longer to absorb excess supply. Investors should look at conversion opportunities, particularly in underutilized office spaces that can be repurposed for life sciences use.
February 8th, 2025
1. GOLD PRICES REACH RECORD HIGH
Gold has surged to an all-time high of $2,866.54 per ounce, as investors flock to safe-haven assets in response to growing economic and geopolitical instability. The rally comes as President Trump’s new tariffs on Chinese imports and potential Middle East conflicts create fresh concerns about global market volatility. With the U.S. dollar strengthening and treasury yields falling, gold’s appeal as a store of value has grown stronger.
For investors, this milestone raises questions about broader market sentiment. Historically, sharp gold price increases signal uncertainty and hedging against inflation or economic downturns. And although gold is a tangible asset (not to be confused with digital gold), it has limited economic use and does not produce cash flow. If you are considering diversifying out of the stock market, you might look at CRE opportunities.
2. TREASURY YIELDS FALL
U.S. 10- and 30-year Treasury yields have dipped this week, driven by escalating tensions in the Middle East and a flight to safety among investors. The decline follows uncertainty around U.S. involvement in Gaza as well as important employment and manufacturing data released this week.
For the broader economy, falling yields suggest growing investor caution. Lower Treasury yields typically make borrowing cheaper, which can be positive for real estate and corporate financing. However, if yields remain depressed due to geopolitical risks, markets could experience increased volatility and uncertainty.
3. STOCK MARKET’S GROWING INFLUENCE
A recent article in Barron’s highlights how the relationship between the stock market and the real economy is stronger than ever, with consumer spending increasingly tied to equity performance. Recent data shows that U.S. GDP grew at an annualized rate of 2.3% in Q4, fueled by stock market-driven consumer confidence. This dynamic suggests that any significant market downturn could have an outsized impact on economic activity, particularly in discretionary spending sectors like retail, travel, and hospitality.
A strong equity market supports wealth accumulation, but its influence on economic expansion means that a market correction could trigger an unexpected slowdown. With equity valuations increasingly higher than average, it might be prudent to consider your long-term portfolio allocations. Having a plan and sticking to it, and diversifying among several growth-oriented assets, can help to dampen potential drawdowns in the stock market.
4. BLACKSTONE KEEPS BETTING BIG
While some investors remain cautious, Blackstone is doubling down on commercial real estate, increasing its investments by 70% last year, totaling $25 billion. The firm positioned itself to capitalize on bottomed-out property values, expecting a sustained recovery in 2025. Key areas of focus include logistics, multifamily, and retail properties, where demand fundamentals remain strong despite recent market challenges.
Blackstone’s aggressive move signals renewed confidence in the CRE market, particularly in assets with strong cash flow and inflation-hedging characteristics. For investors, this serves as a reminder that market downturns often create the best entry points. While office space remains a challenging sector, areas like industrial, high-quality multifamily, and necessity-driven retail continue to present compelling opportunities.
5. INVESTORS BRACE FOR INFLATION SHOCK
With President Trump’s pro-growth policies—including corporate tax cuts and regulatory rollbacks—investors are becoming increasingly concerned about a potential inflation resurgence. The Consumer Price Index (CPI) is projected to rise to 3.5%, well above the Federal Reserve’s 2% target, potentially forcing the Fed to delay or reverse expected rate cuts. This unexpected inflationary pressure could disrupt markets that have been pricing in a more accommodative Fed stance.
For investors, inflation remains a key risk factor in portfolio construction. Rising prices could erode real returns, making assets like real estate, commodities, and inflation-protected securities more attractive. At the same time, higher inflation may place renewed pressure on interest rates and borrowing costs, impacting corporate margins and consumer spending. We continue to find value in sectors that benefit from economic drivers in various market conditions, including self-storage and multifamily.
January 10th, 2025
1. THE RISE OF PRIVATE CREDIT
Private credit has emerged as a favored asset class among ultra-wealthy investors, offering equity-like returns with current cash payouts. These non-bank lending opportunities have gained traction as traditional banks tighten credit conditions, making private credit a viable alternative for businesses seeking flexible financing. While this asset class is attracting significant attention, its illiquidity and the complexity of some deals necessitate thorough due diligence.
For investors looking to diversify, private credit presents a compelling case, particularly Treasury yields appear to be rising. The demand for alternative lending solutions remains strong, creating opportunities for those willing to navigate the associated risks. Consider the Ascent Income Fund as a way to access higher potential yield with real estate backed senior loans.
2. WHAT’S NEXT FOR GROWTH?
The U.S. economy continues to surpass expectations, with December delivering robust job growth of 256,000 and unemployment falling to 4.1%. Richmond Federal Reserve President Tom Barkin expressed optimism about 2025, citing resilient consumer spending and job stability as key growth drivers. Despite these positive indicators, policymakers remain cautious, balancing growth with the need to monitor inflation closely.
For investors, this dual narrative presents both opportunities and challenges. On one hand, a strong labor market and consumer confidence support stable returns across multiple asset classes. On the other, inflationary pressures and potential policy shifts require vigilance. Diversified investment strategies and a focus on inflation-resistant sectors, such as multifamily housing or industrial properties, may help mitigate risks while capitalizing on market strength.
3. RETAIL REAL ESTATE
Retail real estate is seeing a shift in investor preferences, with grocery-anchored neighborhood shopping centers taking center stage. These open-air centers provide consistent foot traffic and stable returns, making them highly attractive in an evolving retail landscape. Meanwhile, enclosed malls continue to struggle with high operational costs and competition from e-commerce, underscoring the importance of asset selection in the sector.
Investors are recognizing the defensive qualities of these properties, particularly as they cater to essential consumer needs. For those exploring opportunities in retail real estate, prioritizing assets with strong anchor tenants and proven foot traffic metrics can provide stability and long-term growth potential. This trend offers a glimpse into how consumer behavior and investment strategies are aligning in the post-pandemic world.
4. AI IN FINANCE
Artificial intelligence is rapidly reshaping the financial landscape, enabling more sophisticated investment strategies and risk assessments. From portfolio optimization to fraud detection, AI is proving invaluable in streamlining decision-making processes and uncovering opportunities in increasingly complex markets. However, as adoption grows, regulatory scrutiny is also intensifying, particularly around data privacy and algorithmic fairness.
For investors, the integration of AI offers a competitive edge but also demands a deeper understanding of the technology’s implications. Staying informed about regulatory changes and ensuring ethical implementation will be critical for navigating this evolving landscape. As AI continues to drive innovation in finance, those who embrace its potential while managing its risks are likely to benefit most. Check out our Multiple Perspectives podcast on Apple iTunes or Spotify to hear more about modern real estate investing powered by technology.
5. PLANNING YOUR PORTFOLIO
As we start the new year, you might be looking to rebalance your portfolio or deploy some dry powder, like many other investors. While traditional stocks and bonds can be a great foundation for your investments, there are lots of options beyond public markets. Private markets can be a source of diversification for your portfolio, and commercial real estate is consistently a large wealth builder for institutional investors.
Take a look at our YouTube channel to learn more about private markets, CRE, and investing for individual investors. You might think about adding alternative investments to complement your 60/40 portfolio and invest like an institutional investor.
December 20th, 2024
1. DISCOUNT CHAINS SEIZE THE MOMENT
Retail is proving its resilience, with discount chains leading the charge in adapting to today’s economic challenges. Ollie’s Bargain Outlet recently acquired a number of Big Lots locations, expanding to 546 stores across 31 states. This strategic move reflects a broader trend where value-oriented retailers are thriving in an era of cautious consumer spending. These businesses are capturing market share by addressing the rising demand for affordability without compromising accessibility.
For investors, this could signal an opportunity to look beyond traditional retail investments and focus on stable, income-producing properties. Discount-anchored retail spaces are often insulated from the volatility that impacts other segments of the market. Evaluating these types of assets as part of a diversified portfolio could yield both defensive and growth-oriented benefits. We recently had an opportunity from O’Connor Capital in North Charleston, SC, for a grocery anchored center, and we will look to partner with them again in the near future.
2. FED ON THE MIND
The Fed cut rates by a very expected 25 bps. The market reacted fairly pessimistically, not because of the cut, but rather because of Fed Chair Powell’s forward guidance on the path of rate cuts. Expectations are still for two cuts in 2025, but this all depends on how unemployment and inflation develop, the two mandates for the Fed.
Other rates in the bond market have been rising for the last month with the 5- and 10-year Treasury yields at around 4.5% each. Even with rates rising, we are still seeing good deal flow here at EquityMultiple. Many markets are bottoming and offering attractive real estate in strong locations.
3. WHEN’S THE RIGHT TIME?
The U.S. commercial real estate market is attracting renewed attention as valuations stabilize and yields reach their highest levels in over a decade, as reported by Commercial Observer. Multifamily and industrial assets are particularly compelling, supported by robust demand fundamentals and long-term growth prospects. Investors are finding that the current environment provides a rare confluence of reduced valuations and attractive returns across multiple asset classes.
This trend invites a deeper consideration of strategic deployment. Those with capital to deploy in sectors benefiting from structural tailwinds—like housing affordability challenges and supply chain optimization—may find compelling opportunities. However, as always, due diligence and understanding localized market dynamics will remain crucial in realizing these potential gains.
4. OPTIMISM WITH A CAUTIOUS EYE
The Michigan Consumer Sentiment Index reached a new high for the year in December, reflecting greater confidence in the economy’s current state. However, underlying concerns about inflation and future economic pressures suggest that optimism is tempered by a sense of caution. Consumer spending, while resilient, may not be immune to broader macroeconomic headwinds.
This duality presents both challenges and opportunities for real estate investors. Essential-service properties, such as grocery-anchored retail and workforce housing, may continue to see strong demand. At the same time, investors should remain attuned to how evolving sentiment might affect discretionary sectors like hospitality or luxury retail. Diversification and a keen eye on consumer behavior will be key to navigating these dynamics.
5. MICROSTRATEGY X BITCOIN
MicroStrategy, a prominent business intelligence firm, has made headlines with its substantial investment in Bitcoin. Between December 2 and December 8, 2024, the company acquired an additional 21,550 bitcoins for approximately $2.1 billion, bringing its total holdings to 423,650 BTC, valued at around $41.5 billion. This aggressive accumulation underscores a growing trend among corporations to adopt digital assets as part of their treasury strategies.
This move reflects a broader shift in how companies manage their balance sheets, with digital currencies like Bitcoin being considered for diversification and as a hedge against inflation. MicroStrategy’s approach has sparked discussions among other corporations about integrating cryptocurrencies into their financial strategies. However, this strategy comes with risks, including market volatility and regulatory uncertainties. Investors should weigh these factors when evaluating companies with significant digital asset holdings.
November 23rd, 2024
1. THE ELECTION HAPPENED
So, the election results are in and many investors are evaluating what a new administration might mean for markets and their portfolios. Elections always bring an element of volatility, but this time, the stakes feel particularly high. With pressing issues like inflation, interest rates, and geopolitical uncertainty top-of-mind, many investors are keenly aware that shifts in leadership could have tangible impacts on fiscal policy, regulation, and industry focus. Sectors like clean energy, big tech, and healthcare are some areas where policy decisions can directly affect growth trajectories and investment outcomes.
The focus now will be on interpreting early policy signals and positioning for what’s next. If the new administration leans into infrastructure spending or clean energy incentives, for example, this could signal a boost for renewables, EV infrastructure, or even AI applications in energy efficiency. Meanwhile, a focus on interest rates and inflation control could impact financing costs across the board, especially for those looking to expand or leverage real estate investments. Investors may want to adopt a cautiously optimistic approach, leveraging tech tools to monitor policy shifts and sector-specific impacts in real time, while staying nimble and diversified to capture opportunities and hedge against potential risks.
2. MILLION DOLLAR MARKETS
A recent study by Realtor.com identified ten affordable U.S. cities that are likely to become million-dollar markets within the next decade. Cities like Boise City, ID and Salt Lake City, UT are experiencing high buyer demand and limited inventory, which drives up housing prices. For retail CRE investors, this trend indicates that certain mid-size markets may see substantial growth in household wealth and consumer spending capacity over the long term. As home values rise, homeowners in these markets may experience increased equity, translating to higher discretionary spending in local retail stores.
These markets may see a shift toward upscale retail and lifestyle amenities as the population grows wealthier, providing opportunities for investors to attract high-end tenants or develop mixed-use properties that cater to more affluent consumers. By focusing on investments in these markets, CRE investors could benefit from both property appreciation and consistent demand for services aligned with rising local incomes.
3. ALL THE SINGLE TENANTS
The transformation of Brooklyn’s historic Domino Sugar Factory into a high-end office space is a testament to the challenges of large office redevelopments in the post-pandemic era. For self-directed CRE investors, tenant demand remains very important in office investments, especially in markets where hybrid work is popular. High vacancy rates in repurposed office spaces suggest that investors should carefully assess tenant interest and the demand for premium office features before committing to redevelopment projects.
Additionally, this example illustrates the risks of investing in single-tenant-dependent CRE projects, particularly in the office sector. Self-directed investors may find greater stability by focusing on multi-tenant properties or office assets with a mix of tenants in growing suburban markets. Moreover, as high-profile, urban office spaces struggle with vacancy, smaller offices with flexible layouts in well-connected suburban locations may offer self-directed investors more secure rental income streams amid uncertain demand for traditional office spaces.
4. LENDING REBOUND
U.S. banks, holding more than $3 trillion in CRE mortgage debt, are expected to increase lending activities in 2025 as interest rates stabilize. For self-directed CRE investors, this lending rebound could present favorable financing conditions for acquisitions or refinancing existing assets. Access to financing with more favorable terms may enable investors to lock in attractive deals, expand their portfolios, and take advantage of the CRE market’s anticipated recovery.
As the potential lending surge demonstrates, timing is important in real estate investing. Self-directed investors should monitor interest rate trends and plan their financing strategies to capitalize on potential rate reductions. With access to bank financing likely to improve, this is an opportune time for investors to analyze properties with high-growth potential. Considering properties that require refinancing by 2025 could also be advantageous, allowing investors to secure better terms and enhance their portfolios’ long-term financial outlook.
5. TEXAS RISING
Dallas-Fort Worth (DFW) has been named the top U.S. metropolitan area for CRE investment and development in 2025, thanks to its economic growth and post-pandemic recovery. For self-directed CRE investors, DFW’s designation as a hot investment area highlights the advantages of investing in high-growth markets. Strong job growth, population increases, and infrastructure development all contribute to the region’s stability and demand across asset classes, from industrial and retail to multifamily.
With the rise in investor interest, property values in DFW are likely to continue appreciating. Self-directed investors can benefit by seeking out value-add properties that can capture market appreciation or by targeting well-located assets in the early stages of growth. Investing in established and high-demand metros like DFW can provide reliable income potential and portfolio diversification if they seek to benefit from long-term regional growth trends.
October 18th, 2024
1. COOLING INFLATION, WARMING OPPORTUNITIES
According to The Wall Street Journal, the latest CPI data shows inflation continues to cool, with a modest 0.3% rise in September. This gradual normalization could be good news for commercial real estate (CRE) investors, as it may prompt the Federal Reserve to hold interest rates steady. Lower borrowing costs would provide much-needed relief for new developments, particularly in sectors like multifamily and mixed-use projects. Our Norwalk Portfolio 12-Month Note, a senior loan for a mixed-use portfolio, stands to benefit from this shift as investors look for stable, inflation-resistant returns.
2. DISTRESSED DEALS GAINING TRACTION
A recent report in The Financial Times highlighted the rising number of distressed apartment and office loans, as higher rates make it harder for borrowers to meet their financial obligations. This wave of distress is creating opportunities for savvy investors to acquire discounted properties, particularly in sectors like multifamily and office space. For those looking to capitalize on the current market dislocation, our Upper Manhattan Mixed-Use Portfolio, a distressed-sale acquisition, offers a compelling opportunity to enter this space with discounted assets.
3. DATA CENTERS ARE STILL HOT
CRE Daily reports that demand for data centers continues to soar, with the southern California market surging with new demand. This boom is driven by the AI boom and the growing need for cloud computing and digital infrastructure. Data centers are becoming one of the most sought-after asset classes in CRE due to their stable cash flows and long-term growth potential. While we don’t currently have any data center investments available, this sector is poised for further growth, making it one to watch for future opportunities on our platform.
4. PLAYTIME NOT JUST FOR KIDS
In a recent Thesis Driven article the rapid growth of competitive socializing venues was highlighted as a key trend in commercial real estate. These spaces, offering activities like axe-throwing, mini-golf, and pickleball, are filling vacant retail spots and driving higher foot traffic. The blend of social interaction and entertainment is reshaping retail spaces, with rising demand for unique experiences. For CRE investors, this trend aligns with potential opportunities in experiential spaces, making such venues attractive investments for retail and entertainment-focused properties.
5. RETAIL IS QUIETLY GAINING GROUND
According to a Reuters report, the U.S. office property market may be approaching a bottom as distressed sales increase in volume. Many of these properties, which have seen significant price reductions due to rising interest rates and reduced demand for office space, are now being sold at deep discounts. This has caught the attention of investors who are eyeing a recovery, positioning themselves to acquire office assets at significantly reduced prices before the market begins to stabilize and recover. For CRE investors, this presents a unique opportunity to enter at a low point in the cycle and capitalize on future gains as office markets recover and normalize.
September 13th, 2024
1. INDUSTRIAL CONTINUES TO SHINE
The industrial real estate sector, particularly last-mile logistics and large-scale distribution centers, continues to attract significant interest from commercial real estate (CRE) investors. This heightened demand is driven primarily by the growth of e-commerce, which has reshaped supply chains worldwide. As consumers increasingly expect fast delivery times, companies are investing heavily in logistics infrastructure to enhance their delivery capabilities, particularly in urban and suburban areas. Last-mile facilities, which handle the final leg of delivery from distribution hubs to consumers, are crucial for meeting these expectations. The rise of same-day and next-day delivery services has pushed companies to seek strategically located industrial properties close to consumer centers to streamline operations and cut transportation costs.
In addition to last-mile logistics, big-box distribution centers are experiencing a surge in demand. These facilities, often exceeding 500,000 square feet, serve as crucial nodes in global supply chains, storing and distributing products on a large scale. As retailers and manufacturers prioritize efficiency and cost management, they are expanding their network of large warehouses to accommodate higher volumes of goods. CRE investors are capitalizing on this trend, seeing opportunities in markets where vacancy rates for industrial properties remain low and rents are rising. The growing importance of robust logistics networks has made the industrial sector one of the most resilient and sought-after asset classes in commercial real estate.
2. BUSINESS LEADERS OPTIMISTIC
Despite economic uncertainty, a survey by JLL revealed that two-thirds of business leaders expect their corporate real estate budgets to increase through 2030. This signals optimism for long-term growth, but companies are also planning smarter portfolio use, focusing on efficiency and sustainability. These budgets could be spent on expanding retail or office footprints, but could also be used to strategically expand supply chains with targeted industrial properties.
EquityMultiple has focused on potentially resilient commercial real estate types like industrial and multifamily. Particularly, we recently launched Saint Cloud Multi-Bay Industrial, a multi-tenant commercial property just outside of Orlando, FL. The sponsor, Ultimate Realty, is focused on raising rents to market rates in a very low vacancy and high demand market.
3. CHANGING THE RULES ON FANNIE & FREDDIE
We wrote last month about potential tightening of standards at Fannie Mae and Freddie Mac. Well, this past week the Wall Street Journal reported on some potential changes advocated by the Trump administration that would change how Fannie and Freddie operate. The two mortgage agencies operate as government-sponsored enterprises that are also publicly traded. The proposal by Trump is to further privatize the agencies. This is a long way off from approval but further changes to the way the housing industry operates could be seen as reflecting frustration many Americans see in their housing situations. The increase of private ownership of the mortgage securitization process is likely a call for more efficiency in the process, but it remains to be seen how this would affect commercial real estate broadly.
4. PLACE YOUR BETS
Like any other investment company, we like to know what’s going on with the markets. And, given the opportunity we would love to know what the future holds for rates, sentiment, or any number of economic indicators. Unfortunately, we are not prognosticators and thus focus on finding quality properties, trustworthy operators, and favorably structured investments. But that hasn’t stopped others from trying to bet on the future.
The courts recently rejected a block on market betting platform Kalshi which allows users to bet on various economic indicators and even the weather. This has opened up the door for further speculation in myriad areas including the result of the presidential election. We will let others place their bets, and we will continue to focus on tangible, real estate-backed investments.
5. SHOULD I BE CONCERNED?
Many real estate investors are understandably interested in the potential impact of the 2024 U.S. elections, bracing themselves for changes in economic and tax policies that could disrupt CRE market conditions. According to a Forbes article, uncertainties surrounding shifts in government leadership and regulatory changes often heighten anxiety within the investment community. Investors are particularly attuned to potential alterations to tax regulations and economic initiatives that could affect property values and returns.
However, as highlighted by Weatherly Asset Management, historical evidence suggests these fears are often misplaced; though elections tend to cause short-term market fluctuations, their long-term impact on real estate investments is minimal, and a recent report from JPMorgan Chase suggests that CRE markets have historically responded to the macroeconomic conditions surrounding elections rather than the elections themselves. Both Forbes and Weatherly emphasize that successful investors should prioritize the fundamentals, such as asset quality and economic indicators, as opposed to overreacting to political outcomes. A focus on sound, long-term strategies and resilient investments may help real estate investors manage election-related uncertainty more effectively.
August 11th, 2024
1. WHICH SIDE OF THE TRADE?
The apartment and office sectors are increasingly feeling the strain of rising interest rates and tighter lending standards on property owners. According to a recent Wall Street Journal report, a growing number of apartment and office loans are coming under stress, with many borrowers struggling to meet their financial obligations. This wave of distress is creating a landscape where motivated sellers are more likely to offload properties, sometimes at prices well below their intrinsic value. For savvy investors, this moment of dislocation in the market presents an unparalleled opportunity to acquire high-quality real estate assets at significant discounts.
For platforms like EquityMultiple, having capital ready to deploy in this environment is a distinct advantage. The firm’s thorough due diligence process is specifically designed to identify opportunities in distressed markets, ensuring that each investment is not only attractive but also aligned with a long-term strategy for growth and stability. By targeting properties that may be undervalued due to current market pressures, EquityMultiple can offer investors a chance to capitalize on the broader market’s challenges while minimizing risk. In an era where many are retreating from the market, EquityMultiple’s approach underscores the potential for strong returns, bolstered by strategic acquisitions and careful vetting of distressed opportunities.
2. EVERYONE JUMP IN THE POOL
The commercial real estate (CRE) market is witnessing a surge of interest and activity from major institutional players, a trend underscored by Equity Residential’s recent $1 billion acquisition of residential assets in Boston, Seattle, and San Diego. This move is not an isolated incident but part of a broader wave, with giants like Blackstone and KKR also making significant investments in the sector. These acquisitions signal a strong vote of confidence in the stability and long-term value of CRE markets, even amidst fluctuating economic conditions. For individual and smaller investors, this momentum among larger institutions serves as a compelling indicator that CRE remains a robust and attractive asset class. As these industry leaders continue to pour capital into high-quality properties, the CRE market’s foundation only solidifies, offering promising opportunities for those looking to diversify their portfolios and capitalize on sustained growth.
3. FANNIE & FREDDIE CHANGE THE RULES
The recent tightening of real estate lending rules by Fannie Mae and Freddie Mac marks a significant shift in the landscape of residential and commercial financing. These government-sponsored entities are set to implement stricter loan standards, a move likely aimed at mitigating risks in an increasingly volatile market. This tightening could lead to reduced accessibility for borrowers, particularly those on the margins of creditworthiness. While this may slow down certain segments of the real estate market, it also opens up a new playing field for alternative lenders, who are not bound by the same stringent guidelines.
For non-bank lenders like EquityMultiple, this development presents a unique opportunity. With traditional financing avenues becoming more restrictive, borrowers may increasingly seek out alternative sources of capital, making EquityMultiple’s Ascent Income Fund an attractive option. The fund, designed to provide diversified income streams through real estate-backed loans, can capitalize on this gap in the market. By stepping in where traditional lenders may now hesitate, EquityMultiple can not only offer competitive returns to investors but also support a wide range of borrowers, further solidifying its position in the evolving real estate finance ecosystem.
4. EXAMINING UNEMPLOYMENT
The current landscape of the U.S. labor market, while showing a slight uptick in the unemployment rate to 4.3% in July, remains robust and resilient. Job growth has continued, albeit at a slower pace than expected, with notable increases in sectors like healthcare, construction, and transportation, indicating ongoing economic activity and opportunities in these areas.
Recent data suggest that initial jobless claims have decreased more than anticipated, falling to 233,000, which is a positive sign that fewer people are filing for unemployment benefits. This points to a stabilizing labor market that continues to support its workforce despite broader economic anxieties. Overall, while there are pockets of concern, the fundamentals of the job market are solid, providing a reassuring signal amidst economic fluctuations.
5. DATA CENTERS STILL HOT
The data center investment landscape is experiencing a significant boom, driven by the rapid expansion of AI, cloud computing, and digital infrastructure demands. Key regions like Northern Virginia, Chicago, and Dallas are emerging as hotspots, attracting substantial capital from institutional investors eager to tap into this growing market. These regions are benefiting from increased investment due to their strategic importance in the digital economy.
However, institutional investors are heavily focused on these large-scale data centers, which can make this a large and crowded investment arena. While these properties are hot, we still see attractive return potential in core commercial real estate property types. Especially in tight markets with limited supply, investors can find excellent pricing power. You might consider this small-bay industrial park available now.
July 12th, 2024
1. TURNING A CORNER
In aggregate, CRE prices have inched up for the first time since the onset of higher interest rates. As PGIM noted in its recent CRE outlook, “Values have started to turn a corner – the pattern is consistent with past cycles, pointing to a stabilization this year and return to growth in 2025.” In other words, we aren’t necessarily at the bottom of the market at this moment, but we’re probably somewhere close. Countervailing factors are still keeping some investors on the sidelines, however: increased vacancy rates, tempered rent growth, and a new supply pipeline that remains robust through the rest of the year across many markets and sectors. Institutional investors are already on the move, to a limited extent. In markets with robust sector-specific fundamentals, now may be the moment to act, with the upswing not fully evident yet.
2. ADAPTING TO OFFICE
A new survey from JLL discovered that 87% of organizations worldwide operate under some form of a hybrid work model. This is a huge figure, just four years after the pandemic upended the way knowledge workers conduct business. This carries several implications:
- Office operators and investors will have to embrace technology, especially for occupancy planning, to make efficient use of space. Those that embrace technology and create innovative amenities and leasing structures for hybrid-work tenants may tap into attractive opportunities.
- No matter how you slice it, the total number of office desks in demand will shrink. Especially for older buildings and in locations that no longer hold cache for employers, this opens the door for office conversions, as we noted in our last Monthly Multiple.
Both trends are worth keeping an eye on as the market cycle plays out and distressed opportunities come to market.
3. VIBES VS. DATA
The McKinsey Global Survey for 2024 paints a complex picture of the global economic outlook. On one hand, there’s a noticeable uptick in optimism about both global and domestic economic conditions. Yet, this positive sentiment is juxtaposed with a pervasive fear of an impending recession, fueled by concerns over geopolitical instability, political transitions, and rising inflation. Regional differences are stark, with some areas expecting growth while others brace for challenges such as increased unemployment and higher interest rates.
For commercial real estate (CRE) investors, this mixed economic sentiment presents both opportunities and risks. While optimism suggests potential growth and robust company performance, the fears of regulatory changes and declining customer demand necessitate a cautious approach. Investors should be mindful of these dynamics, balancing their strategies to mitigate risks while capitalizing on areas of growth. The nuanced economic landscape underscores the importance of staying informed and agile in investment decisions.
4. GREEN FINANCE
Investment opportunities continually evolve, offering promising avenues for keen investors. A standout example is the recent surge in C-PACE (Commercial Property Assessed Clean Energy) loans. These loans, which fund energy efficiency improvements, attach debt to the property rather than the owner, providing long-term, fixed-rate financing. This structure is particularly appealing in today’s tightening credit market.
Yet, investors must remain vigilant and attuned to new trends to navigate the commercial real estate landscape successfully. Staying informed about the latest opportunities is crucial. Platforms like EquityMultiple offer valuable insights and diversified investment options, keeping investors ahead of the curve.
5. RETAIL RISES
Investment opportunities emerge when other investors look at an asset or asset class fearfully, or don’t fully understand what’s going on. Or both. Retail may now present such an opportunity. Per CRE Daily, a record 98% of shopping center space is leased within 9 months of becoming available, a record. Ecommerce has certainly put a dent in demand for many types of physical retail space. Still, ecommerce has not taken over every retail vertical. Grocery-anchored retail is still in strong demand, particularly among budget brands. Persistent inflation is hitting groceries harder than other consumption line items, which could keep this demand driver going for some time. Moreover, no one has really been building physical retail spaces for the past 10 years. In a higher rate environment, this trend will only continue, keeping the supply/demand picture favorable for investors in certain types of retail. If “essential retail” is attractive, you might consider an investment on the EquityMultiple platform. Montague Corners Value-Add Retail is a retail center in South Carolina anchored by several essential businesses including a Planet Fitness gym, Save-a-Lot grocery store, and Dollar General discount store.
May 10th, 2024
1. MOTOR CITY MOTION
Recent headlines (1, 2, 3) make it seem like post-pandemic America is facing a Mad Max scenario. These “doom loops” evoke some sort of spiral into unstoppable decline. There certainly has been some pullback in urban vibrancy especially as populations have reshuffled and work-from-home has become an expected part of corporate life. But far from being irreversible, some positive news from Detroit appears to show what the long term for urban revival could look like. A recent article points to a recovery in the Motor City a decade after the city declared bankruptcy. Although it was far from a smooth ride, the new vibrancy shows how no city is unsaveable and that enterprising, motivated developers can bring back life to cities in decline.
2. SCOPE CREEP
The US Federal Reserve has a dual mandate: stable prices and full employment. Generally, the former is a steady, predictable rate of inflation to stimulate the economy, and the latter is unemployment at a tolerable level in line with a job market in motion. The clear and simple mandate is elegant in that it allows for flexible solutions unburdened by partisan or populist whims. In fact a politicized Fed could erode trust or, worse, turn the economy away from a market approach and much closer to a centrally planned economy. The European Central Bank functions similarly for the Eurozone member states. But recently French president Emmanuel Macron pushed the ECB to use its powers to support a transition to green energy. Although reducing carbon emissions is a noble goal, the ends don’t justify the means. Opening the box of politicizing monetary policy could creep Europe even closer to a non-market based economy and destabilize the natural function of markets.
3. AND NOW FOR MY NEXT TRICK
What a saga for WeWork. From tech darling, to apparent burning-pile-of-money, it now looks like WeWork’s property manager is stepping in for a try at the helm. Yardi brings a very different management style as compared to Adam Neumann, the high profile CEO of yore. The deal is viewed positively by industry experts, who believe Yardi’s experience and data-driven approach could stabilize WeWork and possibly lead it to profitability by 2025. This new leadership could also mean a shift towards a more conservative, data-informed strategy for WeWork versus the high growth hope when WeWork launched.
4. FIRED UP
If you’re like most Americans you want financial stability and security. More than that, you probably don’t want to work for the rest of your life. Naturally, we tend to work for a few decades, save for retirement, and then enjoy the last several years comfortably pursuing our interests (hopefully). Taken to its extreme, saving for retirement could allow you to retire significantly sooner than the typical 60-something. The recent trend of achieving financial independence and retiring early (FIRE) has caught on with Millennials. The idea is to cut costs, boost income, and max out savings vehicles like IRA and 401(k) accounts. Some have even been able to retire in their 30s. Although the FIRE movement tends to focus on investing in stocks and bonds, if you are looking for ways to invest for financial independence and income, you might look at our investments at EquityMultiple.
5. HAVE AN IRA?
Speaking of retirement, look out for new rules around IRA fiduciaries. Previously, an advisor selling you an IRA or investments for your retirement did not necessarily need to be a fiduciary. A few years ago, Regulation Best Interest shifted the standard towards making decisions that were in the best interest of the customer, taking into account the unique situation of the investor. Now, the fiduciary standard shifts this even more to having the advisor invest in the best interest of an investor and to manage the money with the highest standard of care regardless of fees or compensation received.
Many investors start with a 401(k) for retirement planning and then add an IRA to supplement the savings. Although most investors are familiar with stocks and mutual funds in retirement accounts, you might not know that you can use a self-directed IRA to invest in real estate like the investments offered by EquityMultiple. Our director of investor relations, Daniel Brereton, recently did a webinar with Rocket Dollar, a self-directed IRA custodian. You can watch the video here to learn more about investing in industrial real estate.
April 13th, 2024
1. WHAT RATE CUT?
At the end of 2023 we spoke about how inflation was likely not transitory. We hypothesized that hidden inflation from fees and merchant charges were driving up the felt costs of goods and services while the sticker prices remained low. Price changes can take time to take their full effect and the most recent CPI report shows how stubborn and persistent inflation can be. Interest rate futures, which analysts use as a forecast of anticipated interest rates, showed a marked change from the end of 2023. Back then, traders expected more cuts than the Fed had hinted at. News outlets are now questioning whether a rate cut will happen at all. But should we take it a step further and ask: what happens if rates need to be increased instead?
2. CAN WE CALL THE BOTTOM?
GreenStreet Advisors, a well respected CRE analysis and data firm, produces a monthly index of commercial property prices, the CPPI. The March 2024 report showed the first notes of a bottoming where the broad CPPI remained unchanged from the prior month. This follows a period of declines across sectors and geographies. There are still some property types and regions that did decline (unsurprisingly office), but the overall trend seems to be a bottoming in the CRE market. This should signal more stability and hopefully the start of a recovery in the CRE market.
3. BLACKSTONE’S BIG BET
And in tandem with the GreenStreet release, Blackstone announced last week that they would be acquiring Apartment Income REIT, known as AIR Communities. AIR owns several upscale multifamily properties in coastal markets. The acquisition comes three months after Blackstone commented on their earnings call that they saw the bottom of the CRE market. By putting their money where their mouth is, the CRE titan could be a harbinger of a CRE market recovery. Multifamily is often a solid performer in varied economic conditions, and if you are looking for diversified exposure to this asset class, you can check out the Foundations Portfolio: Multifamily that we just launched.
4. SAME BUT DIFFERENT
Two of the largest discount retailers in the US have had very different outcomes in the last year. The Wall Street Journal reports that Dollar General and Dollar Tree (owner of Family Dollar) have each had varied success in the current market climate despite having ostensibly the same business. The divergence comes down to where each has placed their stores. Consumers in both urban and rural markets look for bargains and discount retailers tend to perform well during economic downturns or inflationary periods. But despite apparent increased demand, the overhead for these two companies can be very different. Margins are already thin. So, competition and increased real estate costs in urban markets cuts especially deep for Dollar Tree who are closing several locations. On the flip side, Dollar General is expanding, adding several hundred new stores. As with any investment, the business plan matters, but the location and timing matter just as much.
5. DEMAND DRIVERS
In a similar vein, property types with declining demand have very different expected outcomes. With the US in a housing crisis, the idea of office to apartment conversions has had much discussion. Office occupancy has remained stubbornly low and property values have dropped significantly. But converting these properties to residential buildings is still out of reach. Comparatively, a recent article points to how movie theaters, which have also seen a decline in recent years, somehow have a saving grace. Their odd layouts have landlords left with no choice but to lower rents lest the tenants move out in a case of mutually assured destruction. Somehow, consumer demand for in person cinema has lasted just enough to keep the theaters afloat. The tenants and consumers have driven the change in both cases.
March 9th, 2024
1. DRIVING DATA DEMAND
A couple of months ago we discussed how data centers are poised to be a booming asset class with a new AI summer propelling even greater demand. Northern Virginia has recorded unprecedented demand for data centers, continuing to bolster the region’s reputation as a prime location for tech infrastructure. These assets could offer lucrative opportunities for CRE investors. Energy and data demand in Virginia is nearly five times higher than tech bastion San Francisco. In true boom-time fashion, tech giants like Microsoft and Meta are buying up land to stake out territory for more data center developments. Care is required when dealing with a nascent, booming market as it can often tip into bubble territory.
2. WHEN ONE DOOR CLOSES…
The closure of retail spaces is being seen as an opportunity by landlords to backfill these spaces with higher rents, signaling a potentially positive turn for retail real estate despite previous challenges. There are several ways to add value in a real estate project. One is to add improvements and renovations which attract higher paying tenants. Another is to lease-up the property with more tenants at market rents. Typically the market rent will be higher than the current rent roll and higher rents often leads to higher income, in turn boosting the property’s value. In tight markets (a market with low vacancy and high demand), turning over the tenant list can be an excellent way to raise the property value. As we discuss below, the turnover is potentially a sign of a mixed bag economy with certain areas downsizing (big boxes) and core tenants starting to expand (grocery).
3. FITS & STARTS
The season matches the economy. Here in New York, we’ve had volatile weather with alternating rain, cold, wind, and sun. And the current market feels similar with strong economic data face to face with an uncertain feeling about Fed moves and whether we stick the landing. Of note, shares of New York Community Bancorp took a hit after the company announced a CEO replacement and disclosed “material weaknesses” in internal controls related to loan reviews. But a resilient jobs market shows the mixed nature of the current economy with strong hiring counterbalanced with modest wage gains and a rising unemployment rate. All focus remains on next week’s CPI report. Even so, the Fed has come out with words of caution around the CRE market. They are hawkishly focused on potential cracks in banking that could bleed into the broader economy. We remain watchful.
4. BUY ONE IN EVERY SIZE
Whole Foods Market is set to launch small-format stores, beginning in New York City. This move signifies a strategic adaptation to urban markets and evolving consumer preferences, marking a notable development in retail real estate. This is one of several ways that major CRE sectors are adapting to demographic and preferential shifts accelerated by the pandemic. Office conversions is another such trend. And while volume of office conversions hasn’t picked up much, yet, a few dynamics could tip the scales: an ongoing slide in office values; a relaxing of central business district zoning; new efficiencies in project design and execution; and public sector incentives to help projects pencil out. These two trends could complement one another in reshaping central urban cores and yield interesting investment opportunities in years to come.
5. SING A SONG ABOUT THE HEARTLAND
Your correspondent was driving from Washington to Wyoming for a backpacking trip when his British co-traveler asked “why is your country so damn big?.” Indeed. Following a period of meteoric housing cost increases in coastal metros, and the challenges to gateway city central business districts, America looks inward for innovation. This may hold particularly true if onshoring, domestic industrial policy, and renewable energy infrastructure remain legislative priorities. “Put bluntly, if you want to know how America can continue to meet the challenges of global competition, foster innovation, and thrive, the answer comes down to five simple words: Make tech in the heartland.” As of 2021, the majority of VC investment still flows to major tech hubs. But investment flows are broadening: “The surge in venture capital investment has been so substantial that 11 metros now have levels of VC investment that is that comparable to or greater than that of Silicon Valley or Boston-Cambridge in the mid-1990s.” Tech investment can have a “lift all boats” multiplier effect on a local economy, potentially lifting all CRE sectors. For burgeoning tech hubs, asset classes such as student housing, flex/mixed-use space, and industrial may be particularly intriguing.
February 17th, 2024
1. STUBBORN INFLATION
The BLS released the January CPI report this week and markets were not too keen. We’ve previously discussed how hidden inflation could cause reported inflation to edge higher or stay more stubborn than expected. In the world of economics, forecasts tend to extrapolate linearly which can miss the mark and send the stock market reeling. And although the headline CPI is not bad it isn’t falling to a place where the Fed would consider declaring victory. Even when the report is fairly neutral, markets are forward looking such that any deviation from the expectation is amplified. Hidden inflation would take time to fully integrate into the headline numbers. As retailers move prices more smoothly over time, it would seem expected that inflation continues to hold steady at a tolerable consumer level, but nervous Fed level.
From the real estate lens the CPI report shows shelter costs rising at a 5.4% annual rate. Rent costs depend on several factors, but an overall increase in housing costs would be an initial signal of rising rents in major markets. Rent increases are a major source of return for value-add equity projects. More NOI can lead to dividends and a high NOI level can potentially increase the value of a stabilized property at exit.
2. BUYERS STEP IN
Real estate market-watchers have been waiting for three years for the moment when “distress” finally materializes. That moment may have arrived. “We’re in a period of time where it’s great to have dry powder,” said the co-president of Artemis. Distressed sales are finally hitting the market in greater volume, prompted by a combination of higher interest rates, tighter balance sheets in the midsize banking sector, and the chickens coming home to roost in terms of the demand dislocations of the pandemic. Forward-looking investors are beginning to zig while the headlines are still zagging.
Distressed opportunities could show up in the form of real estate private equity and debt, in the form of “rescue capital.”
3. STAYING PUT
There’s been enough written about the housing crisis where both the affordability of housing and the supply have been at odds. Even with a dearth of housing recent reports show that housing starts dropped in January; however, a closer look shows that permits increased in the last month, which is a better long term assessment of trends in development.
On the other hand, the most recent migration report shows that Americans did not move as much last year, 2023 being a record low year for moving. This comes off the back of a surge in migration in 2022 likely driven by post-Covid reshuffling. It’s important to see the interplay between development and migration trends. Development projects can be long duration and high risk, so getting the trend right is key to success.
4. SAFE AS HOUSES?
Speaking of moving about, what about single-family rental properties and the price of homes? Bit of a mixed bag. After homeownership reached its most expensive point ever last year, average home values have been up and down. Home prices are still generally increasing, but some economists expect the trend to cool. For short-term rentals, the opportunities are still there, but they are dispersed and less certain than in the market of yesteryear. It’s a time of year, before the spring rush, that realtors hold their breath.
No matter what the Fed does in the coming months, mortgage rates will induce sticker shock. Homes will not transact as quickly. And it will remain a better idea to rent than to buy for the average mid-career professional in most markets. Investors therefore may want to take a hard look at build-to-rent and multifamily opportunities.
5. BALLOONING DEBT
The US is currently facing a critical moment regarding its $31.4 trillion debt ceiling, with negotiations between the White House and House Republicans underway. The potential failure to raise the debt limit could lead to a default, risking a sharp economic downturn. President Biden and Republican leaders are engaging in talks to find a solution, amidst differences over spending cuts and the potential of raising the debt ceiling. Meanwhile, the US Senate has taken a proactive step by passing a bill to suspend the government’s debt ceiling, aiming to avert a possible default. The urgency is palpable.
What does this mean for us? Default is unthinkable and in some sense a nuclear option. But the underlying conditions could be showing some cracks, and a more dovish Fed would help to bolster confidence while also reducing US debt costs. Effectively, the country might be able to grow out of the debt and refinance at a lower rate. This all depends on not overheating the economy and also having enough of a workforce to offset an aging population that needs more benefits over time. A more relaxed stance on migration along with more access to capital could be beneficial for communities and investors. But we’ve seen this before. The Reagan era gave us the test case for beating stagflation and trying to grow out of a deficit. Tough to see what has led to such sticky debt, but the lessons learned should inform our next move in the current state.
July 23rd, 2023
What’s News:
The latest inflation report from the Department of Labor showed that CPI rose only 4% from a year ago, about half the rise from when inflation peaked. This is a positive sign that inflation is starting to trend down and begin to taper back to the Fed’s 2% target. The Fed announced at their latest meeting that they would pause rate hikes for now.
U.S. Consumer Price Index: Year-over-year percent change through May 2023
Commercial real estate is affected by inflation and rate hikes in many ways. On one hand, CRE often serves as an inflation hedge such that rents tend to keep pace with inflation and property values rise with rents. On the other hand, higher interest rates tend to correspond with higher cap rates and borrowing costs, which can affect property values and cash flow, respectively. As monetary policy moderates, we can expect to see more liquidity in the real estate capital markets, which presents opportunities for investors.
EquityMultiple sees attractive risk-adjusted returns in both multifamily preferred equity and distressed acquisitions.
Here are five market trends to monitor this week in the context of your real estate portfolio:
1. More volatility?
Are public equities headed for halcyon days again? Not necessarily. The S&P 500’s gains this year are top-heavy, and could be more sentiment-driven than usual. To boot, the spread between the S&P 500’s earnings yield and “risk-free” yield is narrowing. With bond yields potentially being forced down as well, you may be well advised to look upon the traditional 60/40 portfolio construct with ongoing skepticism. Alternatives like (like private-market real estate) can offer a timely diversification driver.
2. All Eyes on Real Estate Debt
CBRE’s chief economist predicts more pain in the regional banking sector, predicting that 311 of 4,800 banks will go bust, while still painting a “rosy picture” for CRE. This confluence of factors, broadly, is why we’re bullish on real estate debt. As CenterSquare puts it: “Due to market inefficiencies, we believe that core-plus [real estate] debt is a mispriced asset class that has the potential to outperform core equity and broader fixed income returns, with lower risk.” The firm’s analysis concludes that real estate debt has the potential to outperform equity.
3. Productivity Boom?
After the GFC, we had a “jobless recovery.” Pessimistic economists (is there any other kind?) now worry that we may see the opposite: a “job-full recession,” owing to stagnating labor productivity. Generative AI has real potential to rapidly turn the tides, spur labor productivity growth, and reverse (or even stave off) a true recession. Even the enthusiasm for AI could potentially be a near-term boon for real estate markets, even beleaguered gateway metro office markets. The irreplaceable buzz of big city innovation, and agglomerative economies of scale, could help hasten the recovery of occupancy rates and valuations.
4. Don’t Chase the Hype
With the S&P 500 on the starting line of the next bull run, it is worth looking at what expectations propelled the last one. In recent weeks, the SEC has taken aim at crypto-asset exchanges alleging that the firms were operating unregistered exchanges. Crypto is exciting, but each hype cycle often follows a similar trend. A new AI summer begins with promising advances and technology stocks are rising to nauseating highs again. New tech is propelled by optimism and, each time, the reality tends to be much more tame. Investors are left with the bag. Tangible assets like real estate exist in the real world. Regardless of what the new hot tech is or the new enterprises we develop, we all need a place to live and conduct business.
5. When One Door Closes…
With large office real estate developers and managers suffering a downturn, investors are pausing to assess what is happening in the market. Several office markets are seeing large drops in value. The new normal of hybrid work has been resilient to corporate pressures and employees continue to cement into lower cost, suburban areas. What happens to be a loss of value in commercial office looks to be supporting a boom in suburban retail and new construction in the Sun Belt. Although prudence is required to not fall into a new hype cycle in these markets, it appears that the secular trend kickstarted by the Covid-19 pandemic continues. Workforce housing could be an interesting investment here and with the current hot market, investments higher in the capital stack (like preferred equity) can provide a higher priority return.
