Articles | Recentric Real Estate – Commercial Medical Real Estate Acquisitions

The Window of Opportunity Begins to Open!

by recentricrealty | Apr 25, 2023 | Articles, Perspective

Interest rates are up, real estate valuations are down, and inflation is cooling. The latest CPI numbers are out, and inflation is at a 5% annual rate as of March 2023, still well above the Fed’s 2% target rate. The banking system is being stressed to levels that are making the Federal Reserve consider a pause in their rate hikes. As a real estate investor, this can be particularly good news. Here are exactly what the opportunity indicators are showing:

Commercial Loan Maturities

A leading indicator of broader distress finally playing out in the marketplace is in maturing commercial loans that were underwritten at a certain debt service coverage ratio and at much lower interest rates. Now that these loans are expiring and returning to the market at much higher interest rates, there is a wave of defaults expected to hit the broader markets.

According to Trepp, there is $52 billion worth of loans comprised of just over 3,000 properties contained in the Trepp database maturing over the next 24 months where the current debt service coverage ratio (DSCR) at the property level is 1.25x or less. Almost half of the properties are multifamily with roughly 1,450 properties meeting the above criteria. Additionally, $17 billion of the $52 billion has occupancy below 80%.

Personal Bankruptcy on the Rise

Families have increased non-housing debt by 75% over the last 10 years, and are now cutting back on expenses, vacations, house upgrades, and more to help offset the costs of a more expensive inflationary world. Unfortunately, the projection for personal bankruptcies is trending higher, which will lead to defaults not only on residential properties but also on commercial properties which are personally guaranteed by individuals.

Fallout From the Banking Sector Stresses

Recently, the US central bank economists have predicted a US recession will begin later in 2023, citing fallout from the recent bank failures of Silicon Valley Bank and Signature Bank. This will cause the unemployment rate to rise through early 2024. Additionally, many officials have indicated “there would be some tightening of credit conditions.”

This in turn will make it harder for commercial loans to refinance, especially if they are underperforming.

The Federal Reserve is playing chicken with the economy and a freight train called inflation. Yes, the freight train may be slowing, but it is still going too fast for the likes of your average household in the United States. All these signs point to a slower economy and even signs of distress.

It is during distress that the best opportunities present themselves, and the Recentric team is actively seeking out opportunities in this dynamic market. In the words of the great Warren Buffet, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

Expect the Unexpected in 2023 – Insight For Your Real Estate Investments

by recentricrealty | Jan 20, 2023 | Articles, Perspective

Medical Real Estate Commercial Investment

As President Franklin Roosevelt observed over 80 years ago: “Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” Recentric shares the same sentiment as our former US president. As we all put our thinking caps on to navigate the economic uncertainties that lay ahead in 2023, we would like to provide you with insights to help you to strategize on the real estate component of your overall portfolio.

Where to Focus Within Commercial Real Estate

For many, stability is the main goal given all the uncertainties both domestically and globally. This makes core and core plus real estate (properties with strong tenants and locations) especially attractive to investors. If you are more concerned about higher return potential, focusing on value-add with a strong operator, and ground up development with a large percentage of pre-leased are the better options.

A Hedge Against Continued Global Inflation

Returns on real estate, farmland and infrastructure typically perform better in an inflationary environment, according to Nuveen’s Global Investment Committee. While offering portfolio diversification and relatively low volatility, returns on these assets have historically exhibited a positive correlation to inflation. On a local level, Recentric has been experiencing double digit returns on its Denver-based health care stabilized assets which has been a strong hedge against inflation.

Fed to maintain aggressive hawkish interest rate approach

Over the course of 2022, the Fed approved seven interest rate hikes, which included four consecutive increases of 0.75%. Despite this very unnerving reaction, inflation continues to remain stubbornly high. The Fed’s only option to slow down inflation and reverse its damaging course is to continue to raise rates throughout 2023, while trying to avoid a recession or worse. Residential and commercial real estate valuations will continue to decline over the course of the year, making for some great buying opportunities.

Aside from location and strategy, real estate investors need to prepare for the unexpected and align themselves with seasoned real estate investment property managers who can handle the occasional hiccup brought by today’s high-inflation, supply-constrained environment. When times are good, investors have a wealth of options. But in today’s market, real estate investment should follow a more focused approach that capitalizes on larger social trends, such as health care which will persist regardless of economic conditions.

Don’t Wait For the Storm To Pass – Dance in the Rain.

by recentricrealty | May 26, 2022 | Articles, Capital Markets

The US economy seems to be at an inflection point and heading downward. Inflation rates are reaching levels we have not seen since the late 1970’s. The US consumer, which accounts for two-thirds of our domestic economy, is struggling to keep up with the cost of living. The easy money policies of the American central bank are coming home to roost. Many experts including Elon Musk are calling for a recession.“This will probably be tough for some, and this might go on for a year, or may be 12-18 months.” Cryptonewmedia.

Instead of hiding from the storm, now is the time to create a plan for investing before the recession begins:

Dance 1: Keep your powder dry.

Now is the time to start paring back on non-essential purchases (this does not include Fine Wine for those wondering). Call for a family or company meeting and discuss ways to cut back and start allocating money to a “rainy day investment fund.”

Dance 2: Choose your dance partner now.

Sam Zell, the king of commercial real estate, made his fortunes in down economies. In his article, the Grave Dancer, he illustrates the eerie similarities of today and the high inflation environment of the early 1980’s, real estate oversupply and a short term infusion of capital into the markets. Do your research now to align your interests with investment managers who focus on opportunistic areas of real estate. As the markets begin to stress, opportunities will begin to materialize. When there’s blood in the streets, that’s the time to buy. Recentric is in the process of exploring an investment fund to capitalize on distressed market conditions, should they arise. Stay tuned for more information.

Dance 3: Move those inflated investments to gold.

While gold may have lost its luster to the cryptocurrency industry, no other form of currency has as much of a history as a tried-and-true medium of exchange and store of value. For example, during the Great Recession, the value of gold increased dramatically, surging 101.1% from 2008 to 2010, according to a report from the Bureau of Labor Statistics. Be sure to consult with your investment adviser before making any decisions with your stock portfolio or any other investments.

In my April 2022 newsletter article, Control What you Can, and Plan For What You Can’t, I explained that you can create a plan for things you can’t directly control. We have seen this movie before, as recently as 2008, and we know how the movie ends. If we know we are going into a recession, you might as well not hide from the storm, but instead dance in the rain and when the clouds clear, you will be in a better financial position.

How “Alternative” Can You Get?

by recentricrealty | Feb 24, 2022 | Articles

Have you ever reached into a coat packet to find that a $20 bill you lost a few years ago had turned into a $50 bill? Or, you hadn’t driven your car for a few months and the gas tank went from half full to completely full while just sitting in your driveway? It happens to me all the time . . . in my “alternative” world. When it comes to investments, wouldn’t it be nice just to write a check, and let those dollars grow without doing anything? The world of alternative investments can do just that and may be something you’re missing out on!

The one thing I have learned in my 30 years of investing is that if I want exposure to alternative assets, I leave it to the professionals who make it their business to master the art of these asset domains every day. Here are some examples of investments to help you get “Alternative”!

Secondary Investments

Secondary investment funds such as Akkadian, High Gear and Ion Pacific offer the accredited investor the ability to invest in late stage, pre-IPO companies such as Uber, DocuSign and Boom Supersonic. Essentially, these companies approach founders and early employees with the opportunity to sell some of their shares at a discount to realize a liquidity event. This allows them to enjoy some cash now for all their hard work, while the remainder of their shares await a major liquidation event such as a SPAC buyout or an initial public offering. The multiples on these investments can be tremendous with very controlled and mitigated risk.

Private Equity Investments

Private equity real estate firms such as our company, Recentric, offers accredited investors the opportunity to invest directly into medical office buildings in the Western region of the United States. We offer units of investment directly into the Limited Liability Company that acquires such medical office buildings. This investment vehicle offers exposure to one of the safest sectors of commercial real estate, with a 7–10 year horizon. This provides plenty of time to create equity for our investors that can hedge inflation and generate exceptional returns.

Blockchain Technology

Now, you may have read my newsletter Today’s Peacock is Tomorrow’s Feather Duster from July 2021. While cryptocurrency is still relatively new and no one knows its future as an accepted currency in the global economy, an indisputable fact is that Blockchain technology will transform the world in ways we never imagined with technology such as Web 3.0, MachineFI, GameFI, and DeFI. Since I started Winebid.com back in 1997, I have not had this overwhelming feeling of intrigue, excitement, and fascination with a disruption in our economy and literally the way we all function in a society. Fortunes will be made, and sovereign countries will be forever changed, and may even dissolve as a result. While the alternative investment options in this space are limited, I am committed to sourcing a reliable expert in the space to invest. Stay tuned on this topic in future newsletters.

Alternative investments can be very risky. I encourage everyone to consult with experts, do your own homework, and trust your instinct. If it’s too good to be true, it probably is. Having part of your portfolio exposed to unique investment offerings with competent and trusted sponsors may find you waking up one day, living out your dreams because you made the right choices earlier, than later. And if you ever want to grab a cup of coffee and talk alternative investments, I am always ready for that conversation!

Your Most Powerful Currency: Positivity Currency

by recentricadmin | Nov 24, 2021 | Articles, Perspective

As we push hard to get through a challenging year, there is one common thread we all share. We are all trying to be more resilient in our lives whether it’s our personal net worth and investments, or our business vitality and meeting growth expectations. We pour over quantitive and qualitative research and analysis to allow us to make the right decisions and cannot just print more dollars to meet our goals, like a country with a fiat currency. However, you can print your own Positivity Currency. This is your own personal currency that can be printed and stored as an asset.

My wife, Amy and I recently in Cabo, where we are building a second home.

Here are three ways to build your Positivity Currency:

Keep Good Records

When you write down your positive thoughts and moments, they register higher value than non-written forms of positivity, according to research by the founding father of Positive Psychology, Dr. Martin Seligman of the University of Pennsylvania. Record your positive currency transactions and keep a written tally with categories such Family, Friends, Work, etc.

Create Your Own Bull Market

Financial markets boom when more and more people want in. Likewise, positivity is socially contagious and can compound. In the research behind their book Connected: The Surprising Power of Our Social Networks and How They Shape Our Lives, Harvard’s Nicholas Christakis and the University of California, San Diego’s James Fowler explains how happiness depends not just on our own choices and actions, but also on those of people who are two or even three degrees removed from us. Share your Positivity Currency with others.

Portfolio Perspective

Resilient individuals diversify their risk and their positivity currency. Try evaluating what provides the highest returns across your entire “life portfolio” and then invest more in those areas. In a 2015 report entitled “The Happiness Study” from Blackhawk Engagement Solutions, respondents ranked their jobs eighth out of a list of 12 contributors to overall happiness. Ranking in the top spots were their family, friends, health, hobbies, and community. By creating more positivity currency in those areas, you will increase the ability to bring your best self to work.

In order to reinforce your Positivity Currency balance, it is important to consistency review your written notes. So, in the spirit of Thanksgiving at a time when gratitude is at the top of the menu, I implore you to start printing your own Positivity Currency. This is a great time to spend quiet time building your portfolio of your own currency that will pay dividends for the rest of your life.

Equity Happens!

by recentricrealty | Oct 18, 2021 | Articles

Image Credit: bisnow.com

I have long been a fan of the wealth accumulating effects of investing in real estate. If you have the patience and the wherewithal to invest dollars in commercial real estate, only to let it grow and compound, you will likely wake up one day with the pleasant surprise of having amassed large amounts of equity. When you compare real estate as an asset class in the capital markets world (stocks and bonds), commercial real estate has certain advantages over its competition for investment dollars. Here are a few simple reasons why we love investing in real estate and the incredible wealth effects they can have:

Inflation + Real Estate Debt = Your Best Friend

If you have turned on the news lately, or purchased food, gas, or building products, you are aware that inflation has become a reality for Americans, and is looking more to be secular than transitory (meaning it’s here to stay). The recent CPI numbers came out this week and on average, through August 2021, we have hit 5.3% inflation for the past 12 months. How is inflation good for your commercial real estate debt? Let me explain: Most interest payments are fixed in nominal or unadjusted terms. Inflation makes this kind of debt less important in real terms. Raising the inflation target to 6% would substantially increase the rate at which the debt effectively vanishes over time. History has shown US central banks have used inflation to reduce its national debt. Therefore, holding on to cash is a losing proposition in an inflationary environment.

Tax Advantages Are Unmatched

We all know the largest expense we have is taxes. No other investment vehicle offers as many tax benefits as real estate, period. First, you can deduct expenses before you pay yourself a dividend. Secondly, you can depreciate your building in many ways, which is in effect an interest free loan from the federal government. Thirdly, you can utilize the 1031 exchange to trade up to a bigger and better property, while deferring those taxes down the road.

No Such Thing As Impulse Decisions

Your average human being cannot control themselves when it comes to the stock market. According to this CNBC report, “Investing based on emotion has consequences: Over the last three decades, U.S. stock investors have lagged the S&P 500 by more than 7 percentage points annually. Instead of holding on to earn market returns, investors shortchange themselves by trading in and out — at exactly the wrong times.”

Commercial real estate has its challenges; however, if you are invested with an expert in the market, and specific real estate product type, chances are you are going to win more than you lose. The long game of real estate provides security for you and your family. Schedule an initial call with us today to ask any questions learn more about what we do.

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