According to Freddie Mac’s 2023 Multifamily Outlook study, multifamily fundamentals’ present trajectory shows that it is on pace for a decent 2023, however, it may be a stronger second half compared to the first half.
Rents are anticipated to grow, albeit at a moderate pace, with the first few months of the US economy as a whole bearing a significant influence.
According to Freddie Mac, Vacancy rates will grow as a result of slower demand brought on by economic uncertainty and the massive volume of new supply being added to the apartment market. Until interest rate volatility can be reduced, allowing for price discovery, the volume will be restricted.
However, it is anticipated that housing prices will drop in 2023, and data sources indicate that more new multifamily supply will enter the market at a time when demand would be waning. The situation of the labor market during the course of the upcoming year, in our opinion, poses one of the largest threats to the performance of the multifamily market in 2023.
Overall, timing will be very important.
Given the anticipated increase in cap rates, Freddie Mac predicts that real estate values will remain stable but “may see minor decreases in the year ahead.”
This will result in a decrease in transaction volume through the end of 2022 and into 2023.
Freddie Mac anticipates volume in 2022 to be in the $460 billion to $470 billion range, down 5.5% year over year, and volume in 2023 to be down around an additional 4% to 5% to $440 billion.
According to its study, we anticipate fewer transactions given the negative leverage scenario, which supports the notion that investors are waiting for the market to return to an equilibrium
Given their anticipated low note rates and the robust recent market performance, we believe many financed properties are well positioned to cover their loan obligations. As a result, debtors are less under pressure to sell real estate at a cheaper price and might instead wait for better investment possibilities, which would also reduce overall business volume.
The business stated that these projections are predicated on slower increases in Treasury rates and inflation.
The timing of this affects the anticipated volume rise in 2023, according to Freddie Mac. We might see a greater volume in 2023 if this occurs sooner and investment demand rises sooner. We could anticipate lesser volume if it takes longer, especially if the economy enters a recession, as the price discovery and negative-leverage condition are protracted.
Now that the mid-term elections are over, it’s time to review the situation with rent control nationwide. The National Multifamily Housing Council (NMHC) is closely monitoring 23 states that are considering similar legislation.
Tenant advocates are pressuring President Biden to issue an executive order requiring rent restrictions on mortgages backed by Fannie Mae and Freddie Mac, according to the NMHC, which notes that the idea is gaining steam at the federal level this year.
California, Maine, and New York City were the only regions that supported the “flawed policy” which failed in 2022, according to NMHC. It is predicted, however, that Massachusetts will be the biggest danger to its passage in 2023.
NMHC says the Biden administration will continue to be urged to issue an Executive Order (which would not require Congressional approval). and thus “we anticipate major activity in state legislatures in the next year.”
Regardless of whether or not they are implemented, these regulations will receive public attention and as a result, at the very least constitute a reputational danger to the apartment industry.
The cities and states that are proposing rent control measures that fall into the Tier 1, 2, and 3 categories have been tracked by NMHC.
Florida: Has statewide rent control preemption. However, the preemption statute includes a provision for an exception in the event that a local ballot initiative is approved and permits a one-year rent restriction. The real action may occur at the local level, despite the fact that NMHC anticipates bills to be submitted in the legislature to repeal preemption due to the way the law is now constructed.Orange County, St. Petersburg, Tampa, and other cities and counties may once more look into rent control preemption remedies.
Illinois: The state legislature seems to debate rent control every year there. Although attempts have so far failed, they are expected to try again.Maryland: Efforts to implement rent control are expected to continue at the county level, where the actual activity lies.
Massachusetts: Boston Mayor, Michelle Wu, declared reversing the state’s statewide preemption of rent control a key part of her campaign platform in 2021 and has since been working to convince lawmakers to do it.
Nevada: When incumbent governor Steve Sisolak lost to Republican Joe Lombardo, supporters of rent control suffered a setback. Nevertheless, NMHC anticipates a significant push in the state legislature, which only meets every other year.
Washington State: At the request of Seattle’s local representatives, state legislators frequently offer bills to end the preemption of rent control.
Michigan: Democrats now have control of the legislature and the governor’s office after switching the State Senate and State House. During previous sessions, Democrats sponsored legislation to eliminate the preemption of rent control.
New Mexico: In 2022, the Albuquerque City Council rejected a resolution requesting that the state legislature repeal the preemption of rent control.
Rhode Island: A law that attempted to cap rent increases at 4% annually but was unsuccessful in 2022 may be resurrected in 2023.
North Carolina: Republicans presently hold control of both houses of the legislature, and the state still upholds statewide rent control preemption.
Pennsylvania: It is difficult for rent control proposals to pass in a Republican-led Senate. The last attempt included implementation of statewide rent control starting in 2022 and cap rent increases at the lower of five percent plus changes in the cost of living or ten percent.South Carolina: Given the conservative makeup of the state government, it is unlikely that defeated legislation from 2022 will be passed in 2023.
California: Voters in Pasadena, Richmond, and Santa Monica approved rent control initiatives on the ballot for 2022. Further adoption of similar initiatives is expected.Maine: Portland voters in 2022 adopted a rent control initiative. Rent regulation is also anticipated to be discussed by the South Portland City Council in 2023.
Minnesota: In response to a ballot measure for 2021, St. Paul introduced rent control this past year. However, the city rapidly noticed a sharp reduction in growth, which compelled officials to change the policy. Minneapolis voters also granted the city council the authority to enact rent control in 2021; however, this has not yet been done by local authorities.
New Jersey: This year, the City of Perth Amboy implemented rent control. In 2023, additional cities might start addressing the problem.
Kingston became the first city in upstate New York to implement rent control. A State Supreme Court judge, however, prevented the city from implementing it.
Oregon: Despite passing statewide rent control in 2019, the state’s legislators are still looking for solutions to the state’s housing affordability issues.
We are ready to assist investors with Santa Ana commercial properties. For questions about Commercial Property Management, contact your Orange County commercial real estate advisors at SVN Vanguard.
Based on acquisition financings, they were rather overpriced, according to Urgo. Bridge lenders entered the market because they thought that having a shorter-term perspective on what lease trade outs would entail made sense when the SOFR (secured overnight financing rate) was 30.
The allocations for Fannie and Freddie for 2023 have recently been lowered by $3 billion to $75 billion by the FHFA. Each GSE must conduct at least half of its transactions in traditionally underrepresented markets with respect to affordable housing.
The agency acknowledged that the market has slowed as higher interest rates continue to restrain demand for mortgages by reducing the allocations for the upcoming year.
The agency stated in a statement that the 2023 caps reflect an anticipated downturn in the multifamily originations market in 2023.
Our Orange County commercial real estate brokers will help you every step of the way in finding the right multifamily investment property, contact us for details.
The US will have a divided Congress for the next two years, with Republicans holding onto a narrow majority in the House of Representatives and Democrats securing a narrower control in the Senate.
Additionally, industry experts suggest that barring a serious crisis, a split Congress means there will be gridlock— which translates to very little getting done. What does that entail for investors in commercial real estate?
Experts add that while federal government action can be highly crucial in times of crisis, these big policy changes can restructure the economy. From the CRE perspective, we are seeing that now is one of those moments. In actuality, historically speaking, commercial real estate has benefited from an outlook with few changes on the horizon.
For instance, in 2017, when revisions to tax laws were being discussed, progress stagnated. Potential changes can divert investors and impede dealmaking; in addition, when Congress is divided, the returns on CRE tends to be larger.
From 1981 through 1986, when Congress was divided, yearly returns were 12.8%. Congress was run by a single party from 1987 to 2000, and turnout was only 6.8%. Returns increased to 8.2% from 2001 to 2002 when Congress was divided once more, while they decreased to 7.8% from 2003 to 2010 when one party controlled both houses. From 2015 to 2018, these trends persisted, reaching 14.2% returns from 2021 to 2022.
However, we know past success does not always guarantee future success. That being said, if you think that the next two years’ divided Congress will lead to inaction, then you very much have two years where the status quo is unlikely to change. Keeping this in mind can definitely help investors lock in a strategic commercial real estate plan tailored for them.
According to recent research from leading commercial real estate firms, retail rents are currently 15% higher than pre-pandemic levels in markets all across the Americas.
The data provided shows that rents in key retail locations around the world averaged a 13% decline from before the pandemic to their lowest point, but have since recovered to lie 6% below pre-pandemic levels. In areas like Asia-Pacific, where rents decreased by an average of 17% during the epidemic (and by 30% in localities like the Luohu district of Shenzhen, China, over the past year), rent growth has been more shaky.
But rents in the US, which were the main driver of retail rent rises in the Americas, are now significantly higher than they were before the pandemic. For instance, rents in Houston’s River Oaks neighborhood increased by a startling 90% since last year.
Global retail markets have recovered almost half of their losses overall since the pandemic’s peak, and the average rent is currently 6% below pre-COVID levels. But as the report acknowledges, the pace of recovery has varied. It can be argued that it has been strongest in the United States, partly as a result of fiscal policies that have been supportive. Other contributing factors are domestic migration patterns that have led to strong population growth in markets like Houston and Austin—and as a result, an influx of purchasing power into those markets.
Even though a doubling of rents in those Texas cities is both impressive and somewhat surprising, there are also clear drivers, analysts write, and the fact that these markets are at the less expensive end of the U.S. cost spectrum also had influence on the percentage growth figure, coming off a lower base.
According to the analysis, rents in high-end retail corridors in the US are now 25% higher than they were before COVID. And although the firm’s list of the most expensive retail markets still places New York City’s Upper Fifth Avenue at the top, Rodeo Drive in Los Angeles comes in at number two, followed by San Francisco’s Union Square, Las Vegas Boulevard in Sin City, Chicago’s North Michigan Avenue, and Boston’s Newbury Street.
In the future, consumer confidence will be crucial. As of midyear 2022, total retail sales were up 33% in the US over pre-pandemic levels, but consumers are apprehensive about the next 12 months due to the uncertainty of inflation and the strain on household spending due to increasing mortgage and rent, energy, and food costs, the research states. We anticipate and hope that consumer confidence will increase if there is some evidence that inflation is steady and declining. There is some preliminary evidence of this sentiment, however flimsy, as we observe several markets’ confidence bottoming out and in some cases even starting to recover.
Our Orange County commercial real estate brokers will help you every step of the way in finding the right commercial investment property, contact us for details.
A consistent theme among investors surveyed in this year’s Emerging Trends in Real Estate report by the Urban Land Institute (ULI) and PwC was an eye toward the positive long-term fundamentals of Commercial Real Estate (CRE) rather than the industry’s glaring short-term uncertainties. While the latest survey results construct a consensus about several looming risks to the industry — rising interest rates, availability of qualifi ed labor, and housing affordability, to name a few — future expectations have the dominant hand in steering current investor sentiment.
As discussed in SVN Research’s most recent Special Report, the Federal Reserve’s interest rate hikes and elevated recession risks are immediate risks to CRE values and transaction activity. However, beyond cyclical headwinds, CRE’s long-term fundamentals remain strong.
US labor market fundamentals lie at the foundation for CRE’s resiliency. Since the Fed began raising interest rates in March of this year, job growth has maintained an average increase of 350,000 new payrolls per month while the unemployment rate stands at 3.7%, moving just ten bps over the same period. Employment sentiment and outcomes strongly correlate with on-time rent payments for apartment renters. Meanwhile, high employment levels are keeping consumer spending levels robust, leaving their mark on the Industrial, Retail, and Office sectors.
Still, things are shifting. Swelling mortgage rates amid record home prices are reducing homebuying demand, moving more housing activity into the rental market. Further, inflation poses a real risk to purchasing power if left unchecked. While by some measures, US households maintain a modest rise in purchasing power relative to before the pandemic, a Chandan Economics analysis of BLS data suggests that since May of 2022, consumer prices have outpaced wages relative to their pre-pandemic levels.
Percolating beneath the Multifamily sector in recent years has been a fundamental shift in household formation and preferences. As discussed in Emerging Trends, even before the pandemic, the millennial generation kicked off an uptick in rent-by-choice and rent-by-necessity demand in the Apartment sector. The pandemic and ensuing spread of remote work added a new accelerant to rental demand, turbo-charging the sector’s growth.
While higher interest rates should calm sector tailwinds a bit, the pre-COVID demographic shift still exists, and workfrom-home migration — while likely past peak, remains a force. According to the 2022 State of Remote Work survey by Owl Labs, those who elected to work remotely in 2022 rose by 24% from 2021, while those working in a hybrid set-up increased by 16%. Furthermore, as the Fed’s quantitative tightening pushes capital toward risk-minimizing investments, residential real estate remains a favorable destination.
Like Multifamily, Single-family rentals (SFR) are poised to benefit from post-pandemic migration patterns. Moreover, as many local markets face supply shortages of adequate housing and zoning reforms struggle to make traction, the glow of single-family assets has grown even brighter.
According to a review of American Community Survey data by the Joint Center for Housing Studies at Harvard University, one-in-three households spent north of 30% on housing costs in 2020. Using the latest data available, the national share of cost-burdened households rose from 28.4% in 2019 to 29.9% during year one of the pandemic.
A hot streak for home prices over the past two-plus years has priced many would-be homebuyers out of the purchase market. With mortgage rates recently climbing above 7%, several of these households are moving into the rent-by-necessity category. As detailed in Emerging Trends, when surveying current renters who also believe homeownership
is important, 67% cite their need to save for a down payment as a reason they continue to rent. 34% cite mortgage unaffordability as a reason. SFR has ascended as a reasonable alternative for individuals and families longing for the space and amenities provided by a single-family home without the expensive mortgage.
Despite goods inflation and supply chain disruptions, Industrial continues to benefit from robust consumer spending. According to MSCI Real Capital Analytics, prices in the Industrial sector grew by 18.1% in the year ending September 2022 — outpacing its peers. Recent growth is a reduction from the sector’s 2021 record-highs, but its sustained double-digit price growth indicates the structural repositioning of Industrial assets post-pandemic.
While rebounding in-person shopping was met with a pullback in online purchases, e-commerce remains the future. As analyzed in Emerging Trends, the number of shoppers who utilized same- or next-day delivery during the 2021 holiday season was relatively steady compared to the year before.
Despite an evident shift back to in-person shopping relative to during the pandemic, the convenience of shopping online remains. E-commerce’s staying power will keep it a key market driver for both Industrial and Retail assets.
As the work-from-home versus work-from-office wars rage on, the Office sector has seen the middle-ground scenario playing out: hybrid arrangements are now the norm. However, beyond the future of hybrid work, there is little consensus about where Office goes from here.
Emerging Trends singles out a few resilient sub-sectors in the face of recent headwinds to the asset class. Data Centers maintain high demand, seeing both organic growth before the pandemic and increasing growth since then as more of our day-to-day lives moved online. Vacancy rates have plummeted in many major markets in America, with the largest footprint located in Northern Virginia, followed by capacity in Northern California and Texas. The Phoenix, Chicago, Columbus, Northern New Jersey, and Atlanta metro areas also stand out as Data Center hotbeds, among others.
Medical Office has also established itself as a growth vehicle in the Office sector. The subset is backed by a growing healthcare sector that accounts for roughly 11% of American workers and almost one-fifth of spending as a percentage of US GDP. Medical Office Buildings (MOBs), which serve as facilities for outpatient services, tend to use longer lease terms and are more likely to renew due to the nature of their services. The asset class is also a reliable recession investment. According to Emerging Trends’ analysis, occupancy remained above 90% throughout the Great Financial Crisis of 2008–2009.
The term that captured Retail sector sentiment as described by Emerging Trends was “wary optimism.” For the past decade, a structural shift towards e-commerce has sparked some soul-searching in Retail real estate; however, during the pandemic, the more reliable subsets of Retail presented the most significant challenges to asset values.
In-person services such as gyms, restaurants, and entertainment venues felt the brunt of lockdowns and reduced economic activity. COVID stimulus efforts, including PPP loans and direct cash injections into consumers’ wallets, helped increase retail sales in 2021. According to an SVN Research analysis of MSCI Real Capital Analytics, deal volume surged by 88% in 2021 over 2020’s total.
While growth has slowed in 2022 in the face of inflation scarring, Retail’s post-pandemic rebound means that many of the sector’s sharpest challenges are in the rearview. Those surveyed in this year’s report gave Retail in 2023 its highest investment prospect rating since before the pandemic.
According to the Emerging Trends analysis, a multi-industry expansion in Retail space acquisition is taking place, with automotive, convenience stores, gyms, cosmetics, pet stores, and sporting goods — among others, planning space expansion. Meanwhile, aggressive expansion continues in the Grocery space, while dollar stores and discounters continue to play a vital role in driving Retail growth as it has over the past decade.
Our previous whitepaper made the case for commercial real estate broker cooperation from a market logic point of view. In this follow up we consider how full broker cooperation is essential for brokers and their clients to unlock the opportunities that exist in the CRE market today. Specifically, we look at the rise of non-primary real estate markets in the US; the changing of the guard in terms of who is investing in CRE today (hint: it’s not the usual suspects); and finally, unlocking opportunity in CRE wherever we find ourselves in economic cycles. It all comes down to creating an efficient, optimized market, and the last three-plus decades have shown us that broker cooperation is key to this.
This whitepaper is SVN International Corp’s President and CEO, Kevin Maggiacomo’s last piece before his death in 2022. Thank you to Solomon Poretsky, SVN Chief Development Officer, and Cameron Williams, SVN Director of Research and Sales Operations, for their contributions.
SVN’s not-at-all-best-kept-secret is that we eat, sleep, and breathe broker cooperation. For us, it’s the future of the CRE market, and, full disclosure, it’s something we’ve been doing for decades already, and we’re consistently seeing the upside of doing so.
We think the rest of the industry urgently needs to tap into the power of cooperation to drive shared value. We made the case for this in our previous whitepaper.
In this new whitepaper, we start exploring the potential opportunities that cooperation unlocks, specifically looking at three big trends taking place today:
But first, we discuss the CRE broker of the future. Because as well as being the key to opportunity and value, broker cooperation is inevitable and is being driven by the intersecting forces of client expectations and the rise in digital technology in our industry. These twin forces will shape the broker of the future, who will, in turn, be best positioned to benefit from cooperation and the opportunities that cooperation unlocks.
The CRE broker of the future is going to be driven by a more informed client who is armed with real estate data that they simply didn’t have access to a decade ago. It will become increasingly commonplace for your clients to profile and understand a CRE market they are interested in investing or divesting in. And it won’t matter if they live in that town’s center, 2,800 miles away, or on the other side of the planet.
Inevitably, this means that the broker who doubles down on simply connecting two sides of a transaction – just being a matchmaker – is going to be usurped by the advisor who understands that modern clients, whether buying or selling, need more than this. If sellers, buyers, landlords, and tenants have unprecedented access to data, then what they really need is someone who can help them make sense of that data.
The broker of the future is not going to be a salesperson for the product, but instead will add value by focusing on where a property is going, and strategically advising their client accordingly. Meanwhile, the matchmaker role is inevitably going to be automated.
As well as being more informed than ever before, clients understand the power of a network (because they use them every day to book vacations, shop, commute, and hire) and will expect their real estate advisor to have the same understanding. It’s going to be very difficult to insist that a single person’s contact list will magically produce an optimal shortlist and ultimately, the perfect buyer for their property. Clients of the future will demand broker cooperation and the generation of organized competition through fee sharing to get the best deal at the best terms for their properties.
Where then is this opportunity? Quite frankly, it’s everywhere, but there are three specific trends we are most excited about.
Conceptually, the US has become much smaller. And this means that there are an increasing number of interesting opportunities in secondary and tertiary CRE markets that can round out property portfolios and offer attractive returns. The key, though, to unlocking these markets is, you guessed it, broker cooperation.
Every day we can see how the country is getting smaller. Regional accents are no longer so pronounced. We all shop at the same grocery and department stores and buy the same brands. And wherever we live, we, for the most part, have similar access to education, medicine, the internet, and other services. The most recent narrowing of the gap between urban and rural, and big and small towns is remote work untethering where we live from where we work. This has made the attraction of a great lifestyle in smaller towns across the country undeniable and achievable, especially
when you consider the rising costs of living and doing business in primary markets.
According to the National Association of Realtors (NAR) Research Group’s October 2022 Commercial Markets Insights Report, rent in multifamily properties has grown fastest in secondary and tertiary markets, specifically in Sun Belt areas such as Knoxville (11.7%), Miami (10.6%), Charleston (10.1%), and Orlando (9.4%)1.
Further, the May 2022 NAR report indicated that nearly all the major absorption gains in office space were in non-primary markets, particularly Inland Empire (1.3 million square feet) and Las Vegas (1.1 million square feet). Charleston, Salt Lake City, San Antonio, Raleigh, and several Florida metro areas (Pensacola, Fort Myers, Orlando, Sarasota, Naples, and Miami) also saw significant increases in office occupancy.
The same report showed that traditionally non-primary property markets saw the largest job gains, particularly in the South and West, compared with larger numbers of job losses in primary markets. This makes it unsurprising that when you look at Urban Land Institute and PWC’s Emerging Trends in Real Estate Report 2022, you’ll find that many secondary and tertiary markets appear on its US markets-to-watch lists.
While we were undeniably seeing perfect conditions for secondary and tertiary markets to offer increasing value for investors, we’re not saying primary markets are going anywhere. This is not a zero-sum game. Instead, we’re suggesting that investors consider the opportunity in secondary and tertiary markets in terms of the value that assets in these markets can bring to their overall CRE portfolio.
“IF INVESTORS ARE TRULY OPEN TO THE
BEST TRANSACTION AND NOT ONLY
WHAT THEY LIKE OR KNOW,
SECONDARY AND TERTIARY MARKETS
HAVE SOMETHING TO OFFER.”
Surveying the entire market, including non-primary markets, to find properties that meet your risk and return criteria is especially important now because properties that meet these criteria are likely to be everywhere.
Similar properties across Los Angeles, Phoenix, and Tucson could have cap rates of five, six, and seven, respectively. What makes each of these a good deal or not depends on what you need the asset to do in your portfolio.
And the way to find these great deals? Broker cooperation, of course. Say you’re a New York or Los Angeles-based CRE broker with a great relationship with your client. You want to help them diversify their portfolio across more markets. Do you need to suddenly become an expert on all 384 metropolitan areas across the US? That’s impossible. Even with the internet, there’s no way you can build the same network you may have in
New York or LA. And you’re never going to be able to tap into the on-the-ground, back-channeled intelligence that unearths the gems before anybody else finds out about them. But, having a relationship with a cooperative broker who, in turn, has relationships with like-minded colleagues across the country gives you access to that high level of intelligence everywhere, helping you find more opportunities for your clients.
Likewise on the seller side, if you’re a secondary or tertiary market broker, the best way you can efficiently market your client’s property is by reaching the largest group of great prospects. Today, these are coming from all over the country (and even beyond – see Opportunity 2 below). A single broker cannot possibly know all the potential buyers for an asset, and this is especially true in secondary and tertiary markets.
But with broker cooperation, you’re marketing that property to the widest possible audience.
More money is flowing into CRE than ever before. And it’s coming from some atypical places. For instance, according to CoStar stats, 66% of deals this year so far have been with buyers from out of state, or even outside of the US. This means that if you’re only ever chasing the usual suspects on behalf of your client, you are missing out on a large swathe of the potential market for that property. And most likely missing out on the best buyer for your investor. This illustrates the stark difference between old-school brokers and the broker of the future who plays a strategic advisory role.
WHERE ARE THESE NEW INVESTORS COMING FROM?
According to the UBS Global Family Office Report, private equity allocations in real estate are set to rise by 37% over the next five years.
Institutional allocations to real estate have grown for eight straight years, with this trend expected to continue in 2022, according to Hodes Weill & Associates 2021 Institutional Real Estate Allocations Monitor. It forecasts 2022 allocations will reach 11%, which is equivalent to an additional $80 billion to $120 billion of capital flowing into real estate.
“ACCORDING TO NAR, FOREIGN
INVESTOR ACQUISITIONS OF CRE
IN THE US INCREASED BY 49% IN 2021.”
This was worth an estimated $58 billion. And, the most recent survey conducted by The Association of Foreign Investors in Real Estate (AFIRE) noted that 75% of members (175 organizations across 23 countries) expected to boost their investment in the US over the next three to five years, with the most popular property surveyed being multifamily. There is no doubt that the real estate secret is out to non-professional and non-traditional buyers, and more unexpected money is coming into real estate today than in recent memory. Real estate does well, even when interest rates climb, and the market is uncertain. This is driving increased participation by people and institutions many brokers have never heard of, and certainly don’t have on
their Rolodex.
And this is only one set of unusual suspects to consider. See Opportunity 1 for insight into how increasingly investors are including secondary and tertiary markets in their portfolios. They’re also crossing state lines and national borders. Finally, investors are blurring the lines between asset classes with mixed-use buildings and cross-asset buying.
The conclusion? You can’t base your future buyers’ list on people who have bought in the past. And any broker that claims to know all the buyers in the market is mistaken and is leaving their clients’ money on the table. To take advantage of this opportunity brokers need a strategy to leverage the power of the missing 66% (or more) to drive value for their clients and brokers. And they have a choice here. They can go it alone and attempt to build their own comprehensive database of potential buyers, or they can energize the entire brokerage community through fee sharing and full cooperation to bring these buyers to the table.
Challenging, and changing, economic times bring different market conditions. Opportunities exist, but in different places and you may need to look for them. For instance, buyers apply different standards and operate with modified strategies. And, at the same time, sellers operate with higher degrees of motivation but with increased external pressures. Creating an efficient market is more difficult than ever.
Nevertheless, there are always opportunities to be had in the CRE market, whether the market is on an upswing and things are looking rosy, or if times are tough and uncertain and the market is in a slump. If you look for opportunities you’ll find them, as long as you are ready and well-positioned to take advantage of them.
In challenging economic times, commercial real estate assets have historically been viewed as countercyclical, with trophy properties, multifamily, agricultural land, and necessity retail doing particularly well. And buying opportunities abound for cash-rich investors. Additionally, in inflationary times, real estate has historically been a hedge as the value of money decreases.
The first unavoidable truth is that economic cycles are inevitable. And the second unavoidable truth is that investors absolutely need a CRE broker during a downswing (Investors need one during an upswing as well, even though they don’t think so. But they are unlikely to be getting the best price without a broker aiding the negotiation, even in buoyant economic times.)
During a downswing in the economy the most prominent buyers are those looking for a discount, and, at the same time, they’ll be more demanding with their expectations. But it has always been possible to sell investment assets with positive cashflows during a downturn. More recently, this is even more likely with more money flowing to CRE in more places around the country (see Opportunities 1 and 2.)
Whether you are a buyer or a seller of CRE, or representing a buyer or a seller, it is clear that broker cooperation is inevitable and essential. Going it alone in a data-driven, networked world is going to become increasingly isolated and ineffective. Cycling through the list of usual suspects in traditional locations is going to run out of steam very soon.
“MEANWHILE, BROKERS THAT DO
COOPERATE FULLY, AND ACT AS
STRATEGIC ADVISERS TO THEIR CLIENTS
WILL FIND AND GRAB THE
OPPORTUNITIES THAT CRE OFFERS.”
We should know, as SVN was founded on the basis of these principles in 1987 and we have been working like this for over 36 years.
IF YOU’RE INTERESTED IN LEARNING MORE ABOUT THE POWER OF COOPERATIVE BROKERAGE, VISIT WWW.SVN.COM
We are ready to assist investors with Orange County commercial properties. For questions about Commercial Property Management, contact your Orange County commercial real estate advisors at SVN Vanguard.
The Federal Reserve increased its benchmark interest rate by an additional 75 basis points for the fourth straight time. There was little doubt as to what would be announced yesterday given the current situation and the government’s resolve to bring inflation down to the 2% level it considers desirable.
Following the Federal Open Market Committee, or FOMC, meeting in November, the Fed issued a press release stating that recent data point to modest expansion in spending and production. Recent months have seen a strong increase in job creation, and the unemployment rate has stayed low. The pandemic’s effects on supply and demand, rising food and energy costs, and other pricing pressures are all still being felt in the form of soaring inflation.
Additionally, the conflict between Russia and Ukraine and related issues like pressure on energy costs and supply chain disruptions for key foods are adding further upward pressure on inflation and dragging on global economic activity.
Then there was the increase in unfilled positions to 10.7 million, which, according to the Bureau of Labor Statistics, largely offset the decline in August. The Fed has been looking for news that shows drops in prices as well as an increase in unemployment. However, according to different BLS data, unemployment rates were higher in 27 regions and stable in eight areas in September compared to a year earlier.
However, the Fed has come under increasing amounts of fire. One common issue is that it takes many months for rate adjustments to have an impact and ripple across the economy. The Fed has taken the risk of taking action when it is unsure of what the final outcome will be by continuing to boost rates, leading to what is known as a positive feedback loop in engineering and control theory. It’s analogous to driving a car, striking a skid on a wet or snowy surface, and then turning in the opposite direction of how the automobile is shifting, potentially spinning the car 360 degrees.
As a result, the following statement from the Fed’s statement yesterday stood out: “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
It was the first sign that the Fed would scale back its rate increases in the future in order to more accurately gauge the impact of its actions thus far. However, there is no published schedule.
According to Charlie Ripley, senior investment strategist at Allianz Investment Management, the real question investors are looking for answers to is when the Fed will halt the pace of rate hikes and Chairman Powell will attempt to tiptoe around the topic as much as possible. The Fed has maintained the status quo for the time being by saying that the main goal is to see “proof” of inflation lowering, but in actuality, they need to start taking into account the natural lag between monetary policy choices and their effects on the economy.
Additionally, there was a warning about what else might occur: The Committee would be prepared to change the stance of monetary policy as necessary if risks develop that could obstruct the achievement of the Committee’s goals.
Our Orange County commercial real estate brokers will help you every step of the way in finding the right commercial investment property, contact us for details.
