June 14, 2023
Investment Outlook: Evaluating U.S. Treasuries and Private Commercial Real Estate
A thought on many investors' minds today is whether to invest in U.S. Treasuries in place of private real estate, or any other investment opportunity for that matter.
June 4, 2021
How Real Estate can Handle Higher Interest Rates caused by Inflation
Today, many investors are concerned that inflation is coming back, and interest rates are on the rise. How would these factors impact private real estate investing? Many incorrectly think private real estate acts like how bonds do in rising interest rate environments (i.e. inflation rises, interest rates go up, bond values down). I don’t believe this is the case. Why can private real estate handle higher interest rates? First, you need to ask: “why are interest rates rising?” Most of the time, higher interest rates are driven by a stronger economy triggering inflation, leading to higher interest rates. Unlike bonds, which have a fixed coupon rate, private real estate has a variety of lease expirations for tenants. This allows sponsors to raise the lease rates as leases mature. A strong economy leads to the following enhancements to revenue: Higher rental rates – Rates can simply rise by inflationary pressures. However, the story is bigger. For example, In Albuquerque, New Mexico, where occupancy rates have hit the 96-97% range. Despite the COVID-19 impact, we were able to raise average rents on a particular multifamily property from $1,050/mo to $1,200/mo over the past year, a 14% rise. While this is an extreme example, it...
