Recession Coming? Are Your Commercial Real Estate Investments Affected?

With all of the buzz about a recession coming in 2021, how does this information affect your multifamily real estate investments?

In case you haven’t heard, here’s what’s going on with the U.S. Treasury.

  • The 10-year treasury has been yielding less than the two-year and three-month bonds causing what’s known as a “yield-curve inversion” which has ignited fears of an upcoming recession
  • The Treasury has dropped more than 150 bps since November reflects apprehension about U.S./China trade conflicts and confirms the intensifying conflict between Japan and South Korea

Now that you’re up to speed on things, let’s discuss how this affects your real estate investments. 

  • The U.S. commercial real estate sales volume was up by 3.4% year-over-year in Q2 with $121.5 billion (CBRE)
  • Loan origination volumes are making history with the declining cost of debt making refinancing a very attractive deal (CBRE)
  • With Federal Reserve cuts and consumer confidence gives enough push to support the economy and real estate markets (CBRE)

Despite the slowing global economy, the U.S. economy grew 2.1% in Q2 2019. On top of that, the labor market remains strong as the number of jobs outnumbers the new workers joining the workforce thus keeping unemployment down to new lows. This is all data reaffirming what we are seeing in San Antonio and Houston multifamily markets and why REEP continues to invest and scale up in these markets.

REEP Equity Market Info - San Antonio

Source: Federal Reserve Bank of St. Louis. CBRE Research, Q3 2019

The Fed’s have also helped propel the economy and the commercial real estate industry by cutting down interest rates. We have been able to take advantage of the low-interest rates from the large cut the Fed’s have made in efforts to support the economic growth through our recent acquisition of Candleridge Park in Houston, Texas. This made the deal a very attractive one especially for our passive investors that joined us for this acquisition. After the 2008 recession, investments have slowly but surely increased to high levels in 2015. Regardless of trade tensions, real estate investment volumes have been resilient and are above the 2015 average. (CBRE Research, 2019)

REEP Equity, multifamily market, investment volumes

Source: Real Capital Analytics, CBRE Research, Q2 2019

Finance opportunities have increased as borrowers are refinancing for longer terms (like we did with one of our properties) or making deals because the numbers work great with the lowered interest. According to CBRE, various factors will continue to support the real estate market. Lowering heating costs will keep foreign capital flowing into the States thus encouraging investors to invest in commercial real estate for higher yields (CBRE, 2019).

In short, despite the risks for the U.S. economy, job growth is high, interest rates are low making it a good market to work with and investment volumes are up. The commercial real estate industry remains a safe bet for current or new investors entering the market. Out of all of the investment vehicles we have observed: Cryptocurrency, treasury bonds, 401k, gold/silver – commercial real estate, multifamily to be exact, has been the most stable and rewarding investment type yet.

 

Leave a Comment