You May Want To Bring A Coat For This Interest Rate Hike

Welcome to Solly's Week Real Estate Investment News where we dive into the topics that affect real estate investments nationally.

Week In Review:?What the hell, Powell? It looks like higher rates are higher to stay and people are not happy about it, on the bright side, it seems like my dream home's price has come down ??. Speaking of coming down, we will be reviewing a few of the opportunities in the Real Estate Services industry that will be significant growth areas for when/if the market picks back up. On that note, the three biggest brokerages are cutting costs in anticipation of a slowdown that could lead to serious layoffs and downsizing of offices.

They are not coming back down...

Investors are under the impression that rates will be coming back to the pandemic area, I have news for you. THEY ARE NOT. With the Fed signaling that it is extremely unlikely that we will see those sweet 2% rates anytime soon, it is important to remember that the drop-in rates were temporary and not meant to last forever. With, it is starting to feel like old times, back before everyone and their mother was a "rEal EsTate InVesToR". This means that deal flow will open back up to clean up deals from distressed owners, tax auctions, and foreclosures, so keep your eyes out for them. Many investors say they will wait for rates to drop before getting back into the market to place funds in deals, this will be followed by lenders opening flexibility on loan-to-cost and loan-to-value as syndicators and developers will have a harder time bringing capital to deals. Three lenders offering relief to builders and developers are Bank OZK, Citizens Trust Bank, and Pegasus Bank.

Corporate Downsizing and Applicable Opportunities:

Amazon is freezing corporate hiring and focusing on building in Canada, Meta is reducing staff by 11,000 people, and the top three real estate firms start layoffs as of the first of the month. As we start to see a decline in the corporate workforce, it is important to remember that "one company's reduction is another's promotion". This means smaller real estate service companies will have the ability to grow and serve niches that the larger firms will neglect given massive opportunity to build a solid foundation. Given current trends, we are already seeing employers spend 75% more in severance pay than they did last year. The opportunities in the new market cycle will be geared toward REI services such as appraisers, inspectors, commercial sales agents, and lending. These services were already in tight supply during the height of the boom, now with the market cooling off, we will see more people looking to specialize within their industry.

On a day marked by the Federal Reserve's approval of a record fourth straight interest rate hike of 0.75 of a percentage point to try to tame inflation, the Chicago-based firm joined rivals in posting sharp declines in real estate lending and sales. That is also resulted in severance payments for the first nine months hitting $21 million, up from $2.1 million a year earlier.

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With the current market outlook, it may be time to push the younger generation towards jobs in the RE/REI services industry, giving them optimal time to learn the trades and be well-prepared for the next boom in the cycle. By starting them young we can ensure a quicker recovery with far less downtime on closings, as well as having a workforce that will be prepared for new opportunities.

The Shift To Alternative Ownership

With the trend of being a passive proprietor coming to a slowdown, the number of new investors participating in the market has dwindled due to higher interest rates and the fear of mass layoffs. New investors have started to turn to Funds and private REITs to gain returns without the hassle of ownership. These alternatives to investors are giving passive investors the cash flow they need/want during high inflation and low rent growth. A big benefit for investors is that these companies have an extremely diversified portfolio spread across multiple asset types and classes. A notable example of a well-diversified Fund is Reunion Variable Income Fund, also known as RVPP. This fund takes a unique approach to growth and offers its investors a 15% return each quarter. With a mix of properties in tertiary and military markets, RVPP provides incredible security with an extremely elevated level of cash flow. The company’s growth comes from its investment strategy that allows its investors to participate directly in deals that will eventually become absorbed into the fund with minimal debt for the benefit of RVPP investors. Another big point of diversification is that RVPP invests as an LP to confirm the security of the preferred rate of return.?

Top Market Pick of The Week

• Our market pick of the week is Hot Springs Arkansas. This sleepy little city is a hot spot for mid to low-income tourism for Texas, Oklahoma, and Louisiana, making it the ideal spot for RV parks, short-term rentals, and hotels. With a large inventory of CPACE-eligible commercial property, it is one place you will not want to skip in your investment endeavors. With an exceptionally large national park it draws in the fourth most visitors out of all the parks in the country, the biggest issue they have is not a lack of commercial development near the center of activity. See our list of underserved sectors in the area, for more information contact our good friends over at Reunion Analytics .
• X10 Commercial- Retail
• X10 Commercial- Mid-Level Dinning
• X5 Commercial- High-Leve Dining
• X70 Short-Term SFR Rentals
• X70 Single-Family Housing
• X15 Multi-Family 8-16 Units