I recently attended The Best Ever Conference in Denver, CO – a premier commercial real estate event for active and passive real estate investors and real estate service providers. The conference provided excellent content on the state of the market, economic outlook, and key industry trends and developments. It was also a great opportunity to network with other industry professionals and to strengthen existing and build new relationships. I was even invited to record a podcast interview, which I will share once released.
While there was ample content, below are a few selected highlights that I thought you may find useful.
Overall Commercial Real Estate “CRE” outlook (and multifamily in particular) remains very positive for 2022 and beyond. Marcus and Millichap, CBRE, and several prominent operators offered key insights.
With inflation now, a reality (and likely higher than the reported 7-7.5% rate), investment in hard assets serves as a hedge against inflation, based on hard asset appreciation in the long run and the ability to borrow at low and fixed rates that are currently well below the inflation run rate.
Demand continues to outpace supply (per Marcus and Millichap there is a five-year runway before supply catches up with demand) driven by population growth, demographic trends, and migration patterns, all of which will continue to push property prices up. Labor shortage and Fed tightening too much and too fast may introduce a few headwinds to this.
With that said, should you buy every real estate asset? Of course not. Select markets with strong fundamentals. Team up with experienced operators. Be prudent and conservative when underwriting opportunities. And most importantly, do not sit on the sidelines – almost everyone wishes they purchased real estate 10 years ago.
Almost everyone agreed that the market remains hot and asset prices are at or close to their highest level. A few possible solutions were offered:
- Select short term investments that have relatively low risk (quick payback periods are a plus)
- Select unique investments with unusual pricing or significant built-up equity upfront
- Select investments in which one does not have to worry about asset prices decreasing
- We carefully curate real estate investment opportunities and diligently vet sponsors and operators. We also focus on markets with strong fundamentals. If you would like to discuss this further, please reach out directly to firstname.lastname@example.org and we can have a conversation about how we can help.
Dan Hanford also offered insights on the seven red flags passive investors should watch out for when evaluating sponsors.
1. No successful background in business.
2. Part-time operator who is running solo OR not part of a larger team with full-time experienced sponsors.
3. Only one managing partner. Preferably there will be two or three (but no more than four to five) partners, unrelated to one another. Ideally, the key sponsors will share their personal contact information, so you have direct access to them and an open line of communication.
4. Lack of preferred return or preferred return with catch-up clauses.
5. Modeling a refi in the return projections (may only make sense with a deep value add). By including refi on the model, returns are enhanced. However, this also creates risk with refi not panning out as planned, particularly in the current rate environment with short-term rates continuing to rise.
6. Distributions accounted for as return of capital vs. return on capital (which also reduces the preferred return $).
7. No skin in the game – key sponsors should invest alongside the investors or reinvest their fees in the deal.
Should you have any questions or want to learn more about real estate investing or for an overview of our target markets, please reach out to email@example.com.
Disclaimer: The information presented does not constitute legal, accounting, tax, or individually tailored investment advice. Past results do not represent or guarantee future performance.