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A recent investor survey by Marcus & Millichap reveals that while CRE transactions may level out this year, investor sentiment remains strong.

The mid-year survey’s headline index value of 159 is “somewhat reminiscent of the trend we saw in 2016,”in which sentiment declined a bit as higher interest rates bit into the market, says Marcus & Millichap’s John Chang.

”But they’re not down by as much as people might expect,” he says.

In 2016, the index declined 12 points and the number of CRE transactions flattened. This year, the index has declined 11 points and that could deliver relatively similar results, in what Chang calls a “relatively modest softening.”

“Yes, the market is going through a recalibration as investors rework numbers based on the rising costs of capital, but the survey respondents aren’t telegraphing a significant market change,” he says.

According to the survey, the top two investor concerns are interest rates and inflation. About two-thirds said interest rate increases aren’t affecting their investment plans, and almost 9% said they’d buy more commercial real estate because of rising interest rates. On the sell side, 77% said the rate increases haven’t caused them to change plans and 11% said they plan to sell more.

Respondents were even more dismissive of inflation, according to the survey. Twenty-four percent of respondents said they’d buy less CRE but almost 12% said they’d buy more. The buying intentions with respect to more inflation-resistant property types like apartments, hotels and self-storage indexed higher, with about 14.4% of investors overall saying they’d buy more of those assets because of elevated inflation.

Cap rates are expected to rise as a result of rising interest rates as well, with 14% of investors surveyed saying they think cap rates will rise by 50 basis points or more over the next year. About 35% think they’ll go up by less than that, and 27% expect no change. And Chang says  since there’s still a lot of capital coming into CRE, yields and stability look compelling.

“Consider that the last 12 months ending in the second quarter of 2022 was by far the most active commercial real estate investment transaction year on record,” Chang says. “Even if activity steps back a bit over the next 12 months, it will still likely rank as the second most active year.”

 

Source:  GlobeSt.

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For those investors searching for assets that can withstand the test of time, I believe real estate prevails. Whether through a market crash, health crisis (like a pandemic) or even an increase in interest rates, real estate can still work for you. While I admit it can be challenging to find new deals right now, if the price is right, who can stop you from investing?

Overall, downturns are inevitable, and as investors, we need to prepare for them. If you’re investing in equities, for example, you shouldn’t focus on one category alone. The same thing goes with real estate; you need to expand and diversify your real estate portfolio to lessen the impact of any downturn. It has been shown time and time again that being prepared helps beat future recessions.

Real Estate Portfolios

A real estate portfolio is simply a collection of investment properties that are cash flowing and appreciating. As income-producing properties, they are assets. They include short-term rentals, rent-to-own properties, commercial properties and home leases.

As investors, when we start accumulating properties and get into the process of building our portfolios, we want to expand those portfolios as much as we can. Therefore, a few properties will generally not be enough. It is essential for you to always be prepared whenever you enter a deal. To do this, you need to diversify your property portfolio as much as you can to mitigate the risk that comes with it. Once an investor, always an investor.

What To Consider In a Property Portfolio

Investing in properties is broad, and you can be as creative as you want to be. For example, who would have thought that Airbnb would cause a decline in hotel check-in rates? Innovation can rock any industry. You need to bulletproof what you have and adapt to changing times. On that note, the following are some options you may want to consider adding to your portfolio in 2022.

Single-Family Rental

Investors never veered their eye from single-family rentals (SFR) as these captivate renters who seek a spacious area—especially since working from home is the new normal. Millennials are eyeing these types of properties to have more breathing spaces, and more retirees are starting to prefer to settle in a single-family setup than in retirement facilities. The single-family rental has always been an investment, but it gained more attention over the years after the global financial crisis.

Moreover, regional migration plays a role in this booming single-family rental (SFR) scenario, and metros in the south like Miami and Phoenix exceed other regions in terms of rent growth. As shifting demographics and generational needs intensify single-family rental (SFR) demands, it’s only rational to add this to your portfolio.

Hotel To Apartment Conversions

Many hotels have become less lucrative with fewer check-ins, yet they still have to maintain high operational costs. Unfortunately, continuously cutting down hotel prices will not necessarily increase patrons.

It should be noted that the conversion of a hotel to an apartment comes with costly renovations. But even if investors have to shell out costs for renovations and hotel conversions may seem to be the lower-end option for the real estate market, investors/developers can still expect a higher return. The reason? Generally, renovation costs are lower than building new developments from the ground up. Plus, it’s easier to market units from hotel conversions.

Industrial Projects

Industrial projects, such as warehouses and logistics, are often not as popular when compared to multifamily rentals. Most investors like multifamily rentals since people will always need somewhere to live. Still, with the booming e-commerce industry and the recent disruption in office space, these types of properties can be a relevant addition to your portfolio.

Conclusion

In conclusion, innovation is not confined to the tech industry. Even real estate, an industry traditionally adverse to major changes, needs to adapt and develop.

There are great opportunities in the market today for you to expand your portfolio. A winning combination of a secure environment for investments and a robust and diversified economy can help tremendously but also prepare for downturns. Be sure to monitor your investments and portfolio closely (or hire someone you can trust to manage them for you) and take advantage of the tax benefits.

 

Source:  Forbes