It Is a Great Time To Move To Real Assets

Last week, Michael Harnett, Chief Investment Strategist for Bank of America, told investors to "Stay in Real Assets". He likes real estate and other Real Assets today because he sees continued inflation through 2024. Multi-family is one Real Asset that has the ability to raise prices monthly with leasing turnover, which is key to maintaining increasing net operating income. He sees no end to increased government spending, and with 2024 being an election year, he believes the FED will be under increasing pressure to cut rates, which will re-ignite inflation and help CRE.

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We agree that multi-family is a great asset to hold during inflationary periods as a hedge, but there are other reasons the asset class remains attractive today. Owning real estate assets provides portfolio diversification away from the traditional 60/40 equity bond portfolio. Equity and bond markets are struggling currently with the S&P 500 falling around 8% since August. For the past year, equities and bonds have moved lockstep, providing no downside protection. In terms of valuation, the S&P 500 has a PE ratio of 24.6, which is 38% higher than the historical mean. Equity prices are stretched, and bad news could trigger massive selloffs and loses. Having said that, multi-family real estate is moving through a price reset that is hurting some and benefiting others. To succeed in real estate, investors need experience and skill to be on the right side of a transaction.

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Trepp reported on three recent transactions in multi-family that give some insight into current market activity. A 428-unit property in Orlando recently sold for a 14% discount to the 2020 purchase price. In Los Angeles, Metwest, a 79-unit property just sold for a 26% discount to the 2019 purchase price. And in Huntington Beach, California, a property was sold for a 6% increase over the 2018 purchase price (tepid but at least positive). The first two sales were most likely distressed due to decisions made at acquisition around price and financing; too much risk was probably taken. On the flip side, the buyers were able to acquire the properties at very attractive prices. These are prime examples of the types of opportunities coming to fruition in the market today.

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The longer rates remain elevated, the more distressed purchase opportunities will be available for investors. Those with variable rate mortgages are hemorrhaging, and time is not on their side. Most of the properties coming to market over the next year or so will be distressed sellers trying to salvage some of their investor's equity, and they will be forced to move fast. To take advantage of this opportunity and enable us to act quickly, we have decided to launch our new CREE Capital Opportunity Fund. We are planning a webinar to launch the fund on December 12th, 2023. We will be sending out an invite to attend and discuss the fund strategy and terms over the next few weeks. Having capital on hand and ready to deploy will give us an advantage in securing deals over others who face the uncertainty of capital raising.

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If you would like to schedule a call to discuss the CREE Capital Opportunity Fund, please click here: https://creecapital.com/contact/

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