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.”
by recentricrealty | Jan 20, 2023 | Articles, Perspective
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.
by recentricrealty | Apr 27, 2022 | Perspective
Life can throw some wrenches your way, especially when you live in a post-pandemic world with financial uncertainty on the horizon. When it comes to your financial game plan, it’s always a good idea to focus on areas where you can direct the course of events. When you are unable to control a situation or outcome (like most things in life), it is best to have a plan to deal with it.
Here are three myths and ideas to have a strong plan for the uncontrollable:
Myth 1: Controlling People
I have learned from operating companies as large as 50 employees, that you must focus on people’s strengths, and accept them for who they are and how they operate. This applies not only to work, but to every single relationship in your life. Fortunately, I was raised in a high acuity personality environment. My mother analyzed personalities for a living. Barbara is an expert consultant helping large companies to analyze personality profiles which help them understand why people behave in certain ways, utilizing the DISC system. Additionally, we have been using the Culture Index extensively through our business partner, Don Dalrymple in very effective ways.
You cannot change people, nor should you try. Understand how they operate and bring out the best in them.
Myth 2: Controlling the Markets
If you decided to sell your real estate back in November 2016 because the S&P/Case-Shiller National Home Price Index pointed to the top of the market, you would have missed out on the largest real estate bull run in the history of real estate. The Index climbed from 184 to 284 in four years. When planning for real estate, you must consider liquidity needs, demographic growth projections, and tenant rental income.
Devising a plan to continue to cash flow your property over 10 years or more is the best way to accumulate massive amounts of equity without worrying about how to time the markets.
Myth 3: Controlling the Government
As discussed in my previous blog dated April 21, 2021, Uncle Sam’s Deadliest Tax, Inflation, we are currently witnessing unprecedented inflation as a result of relentless deficit spending and irresponsible fiscal and monetary policies coming out of Washington DC.
You can hedge against the government’s predictable tax, print, and spend policies by investing in real estate, commodities, and non-US denominated foreign stocks and currencies.
We all want more control, but at the end of the day, what matters most is that you have a plan to manage the challenges in life that you cannot control. This will help you to enjoy your life in a way that is much more stress free and informed. And when you have your plans in place, I recommend the following book by Dale Carnegie, How to Stop Worrying and Start Living. One of my favorites.
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.
by recentricrealty | Aug 31, 2021 | Perspective
Delivering excellent service happens when you put yourself in someone else’s shoes. That’s what our property manager, Eric Rehm does for all our tenants and vendors at each Recentric property. He ultimately considers what experience each practitioner is trying to offer their own patients and seeks to help them deliver that level of service.
Meet Recentric Property Manager, Eric Rehm
With over 15 years in property management in Aspen/Snowmass, Summit County and the Denver Metro area, Eric knows the value and importance of vendor relationships. He is proactive in seeking out the best vendors to care for our Recentric properties and builds trustworthy relationships with each of them. He magically nails that balance of quality and cost. He finds the best resources at the best price point, in order to keep our own operating costs low for our investors. He gets to know the contractors of each vendor, so that he has a direct line to the resources he needs. He respects the relationship and puts himself in their shoes, never calling out favors unless it is important.
No two days ever look the same for Eric. Between all our properties, he could be managing landscaping updates, checking pressure systems, talking to insurance companies, or getting to know a new tenant. While Recentric makes great efforts to be proactive with preventative maintenance, some issues are just unpredictable – like four feet of snow in one morning in Denver which caused snow plow delays, freezes, and leaks. Eric Rehm went above and beyond that day, after just flying in from LA and independently purchased a shovel from Home Depot to clear the walkways and parking lots himself!
Keeping High Standards For Vendors and Quality Service
Eric knows that the experience at each property represents the Recentric brand, which is high quality, professional, and authentic. Everything from the curb appeal of the exterior building to the cleanliness of the bathrooms need to show class and thoughtfulness for the tenant and their patients. Because Eric is naturally able to put himself in someone else’s shoes, he delivers the type of experience that he would prefer, while making others feel appreciated and cared for.
by recentricrealty | Aug 25, 2021 | Perspective
With all the serious and perplexing issues going on this world today, I feel compelled to share a positive and constructive message to help you live your best life, physically, emotionally, and financially. After all, our company’s slogan is “Investing in America’s Health”. Without going into too much detail on the scientific definition of the word “genome” and, for purposes of this article, your life genome can be described as an organisms’ complete set of genetic instructions. Here are a few ideas to create your own set of life instructions:
Put Yourself First
To stay healthy and fit, your first instruction is to make “you” first. Schedule your week in advance and block out enough times to stay active, biking, hiking, walking, yoga! Anything to keep moving.
Be a Digitally Engaged Patient
Your second instruction is to be a digitally engaged patient.
There is a digital health revolution in progress across the globe.
I recently starting using Welltory, both with my iPhone 12 and my Garmin Fenix watch to record my HRV (heart rate variable) and activities. Welltory uses an AI data approach to help you with your sleep, stress and even help you drink less alcohol.
These daily instructions and feedback can provide a wealth of health information.
Tune Out the Noise
Here are ten reasons to ditch your social networking.
Even some younger people are starting to feel the pressure. In March 2018, it was reported that more than a third of Generation Z from a survey of 1,000 individuals stated that they were quitting social media for good as 41 percent stated that social media platforms make them feel anxious, sad or depressed.
What are my new instructions? Since quitting Facebook last year, I now have time to visit my bike therapist for a few more hours a week.
Surround Yourself With Successful People
Did you know that you are the average of the 5 people you hang out with most? According to Jim Rohn, this is true.
As you start to gravitate towards positive and successful people, your life will in turn become more positive in all areas. While this instruction may be intimidating, you will be forced to step up your game. Plus, I find that successful people drink better wine!
Your life genome is yours and only yours to create, nurture and evolve over time. Our human body is made up of millions of cells, each with their own set of instructions. It’s your recipe for life. If you apply this concept to important parts of your life, you can define your own set of instructions to a path for an enriched and fulfilled life.
