part 7

Part 7– Predicted Threats and Opportunities

To understand what the real estate industry experts’ crystal ball for 2021 may predict, a strategy discussion was held with some of the most experienced and knowledgeable real estate experts. The cerebral panel covered topics such as capital markets, the economy, construction costs, development trends, effects of COVID, regulatory matters, and much more.

This article is the last in a series of 7, broken into bite-size topics, related to the all-important question of … “given the current landscape and forecasted trends related to the economic, political, banking, healthcare, and real estate sectors, many real estate investor are asking the question should they be leaning into these headwinds, or should they be retreating to the sidelines?”

Part 1 of the Series suggests that now is the time to be bullish on real estate investing. But what are the fundamentals driving that conclusion? Keep reading the entire series to uncover these fundamentals.

Here is what the experts had to say regarding …

Predicted threats and opportunities — Dr. Masaki Oishi, practicing Neurosurgeon and Co-founder and Chairman — MarketSpace Capital

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A summary of the current environment’s impact on various asset classes, has already been outlined above. However, with respect to Office and retail, and the impending vacancies, rental rate compression, tenant defaults, etc., all these factors contribute to a short-term reduction in NOI … and ultimate value. Values in these asset classes will be negatively impacted and it will take some time to get past these societal, health and safety and emotional concerns. So, now may not be the time to rush out and acquire these assets yet having cash to take advantage over the next 2 to 3-years for an attractive investment basis for investors.

Relative to Industrial, Storage and Fulfillment Centers, the current environment will likely be an attractive investment as an alternative investment class. So, the demand for this asset class will likely surpass the supply in the near term which could generate some good returns.

But, with respect to investing in multifamily, massive demographic shifts are underway, which are creating an avalanche of new renters over the next decade as follows:

  • The effects of this last year’s unemployment, salary freezes, reduction in hours, consumer confidence, elimination of employer benefits such as healthcare, 401 K match, etc. has eroded purchasing power, creating less buyers at each price point
  • Millennials (who have now surpassed Baby Boomers) are still not moving into home ownership due to student debt and lifestyle flexibility
  • New renter households increased by roughly 10 million households over the past 10 years
  • Demographic data says that an estimated 500,000 new rental household units will be created annually through 2025, but only 300,000 new units were built annually in the past 3 years
  • Single population … which generally is a renter … grew by 15 million more “units” above married couples (which generally look to buy a home) over the past 10-years
  • Baby boomers (representing the 2nd largest demographic group ever) are looking to downsize to urban apartments
  • Immigrants have lower home ownership rate … and US immigration continues to rise
  • Tight construction labor market is constraining multifamily construction

Should we lean in … or retreat? — The consensus of the Panel

No matter how divided a society may be, a balance of power in government generally indicates that future policy will remain generally in line with current policies, despite overtures of change. Furthermore, population counts continue to grow. and last time we checked, no one has made more land! So well-placed real estate, like gold, is in finite supply and always a great long-term investment.

We are at a point that a savvy investor could capitalize on all markets, especially when focusing on foreclosures with solid property fundamentals (hotel, office, retail — all opportunities with quality product). Yet, to summarize — real estate is always a good play despite the stock market, president, or parliament. We will feel pain in the short term due to the pandemic, that will translate through to Commercial Real Estate, but long-term fundamentals for core locations is sound. As an investor, this is the time to pounce. As a property owner, this is the time to hold. As a property owner on the edge — this is the time to refinance and benefit from some of the historical low cost of capital.