Say One Thing and Do Another

I have twin daughters who are College Freshmen. They are each responsible for paying for their own college, because I happen to believe that it results in functioning adults that understand the purpose of college- to prepare you for life, not to party.

To help with the cost, one daughter is serving our country through the Army and the ROTC program. The other daughter is getting a nursing degree, knowing the high demand will help to pay off college loans.

Meanwhile, President Biden has been on a campaign to forgive student loans, for people who incur far more debt than they could reasonably expect to pay back. Thus out of the kindness of our hearts as Americans, we are paying the bill for the high debt that many students took out without considering how they would afford to pay it back.

Welcome to American, the Land of Opportunity Inflation.

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SETTING THE STAGE

This is one example of why I believe we will continue to see long term sustained inflation over the long term.

Another example is the 'Inflation Reduction Act' spending, which will do exactly the opposite with tremendous government spending.

• I believe that meaningful reduction in interest rate will not be coming for a long time, as pressures in the economy will keep inflation sustained, albeit at lower rates. Several factors that play into this:

1. The Biden Administration's Student Forgiveness
2. The Inflation Reduction Act which piles more Government spending into Green Energy and Infrastructure, which will also cause continued spending within the Country
3. The reduction in the workforce as Baby Boomer retire, which will drive up the cost of labor.
4. Wartime relief aid, along with effects on supply chain due to ongoing global conflicts

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WHAT THE MARKET IS DOING NOW

We are now a full year into higher sustained interest rates in the market, and activity is coming back to life as investors realize that the path from here will likely only be upward.

We are seeing much more activity come back to the market, with investors looking to put their dollars back into play. It is evident we have reached the high of interest rates/low of market pricing, and there is a hunger for deals again based on unchanging fundamentals.

Reasons why activity is coming back strong:

• The "Distress" many have cried was coming, due to maturing loans and falling values has failed to materialize. This is primary due to strong fundamentals backing up every sector except office. Plenty of dry power has been on stand by to soak up distress as it comes, which has kept substantial price decreases out of the market.
• Currently, Bonus Depreciation may get moved back to 100% if the Senate passes the Tax Relief for American Families and Workers Act (H.R. 7024)
• While the Fed Funds rate may decrease this year, the Bond market may make up for this in the pricing, leaving the effective interest rate at a higher for longer level. We are getting used to a new reality
• While rents have fallen in some higher supply markets around the US, this has not been the case in the Northeast, where supply has been restrained due to the complexity of development. Rents have stayed at very low increase levels, but even with a low increase has eked out the top area of rents within the US during Q2 2024, According to Real Page Analytics.

The Northeast has finished out a 3 year rent increase streak from Covid era thru today, edging out the West for the highest average rents, and neck and neck with the Midwest for the most percentage rent growth since covid.

• Sustained higher interest rates have made many multifamily investors seek long term agency loans, which will 'Lock' in deals from rapid re-trading. Deals that trade will need to be traded with the existing financing to avoid prepayment penalties, which means LTVs will be lower. The lower fixed debt provides more stability to the market in the midst of interest rate volatility.
• Investors seeking return has opened up more Pref Equity Partners- not Tier One investors, but rather return of equity pure loans. More investors seeking return will enter the Pref Equity space for a secure return.

SUMMARY

These changes in the market will mean the easy return of the last 3-7 years will not be seen for another market cycle. The investors that will outperform now will be those that buy with the long term view, not for a 3 year exit cycle and rapid return of investor Capital. The reason real estate has always been a good investment will continue to be the same:

1. Cash Flow
2. Long Term Appreciation
3. Tax Benefits

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Many of our clients struggle with making the right investment decisions to maximize their return. We provide insight on:

-Selling an Investment Property

-Purchasing an Investment Property

-Doing a 1031 Exchange, or other real estate tax strategies

Contact us today so that you can be sure your hard-earned dollars are earning the most return.