Alternative Investment

Interest Rate Hikes Create Opportunities for Some Investors

<p><span style=”font-weight: 400;”>Commercial real estate faces a reckoning in 2023.</span></p>

<p><span style=”font-weight: 400;”>Until the Federal Reserve started raising interest rates, investors poured money into commercial real estate at compressed cap rates, resulting in a lower return on investment. But as the Federal Reserve continues hiking interest rates to curb inflation, cap rates are rising along with them.</span></p>

<p><span style=”font-weight: 400;”>The result is that investors who purchased properties at low cap rates will be overleveraged when their debt comes due, said Victor Whitmore, co-founder and CEO of Precision Equity, a $170 million real estate investment firm.</span></p>

<p><span style=”font-weight: 400;”>&ldquo;When they go to refinance that debt and interest rates are three to four points higher than they were, they&rsquo;re not going to get the loan dollars,&rdquo; Whitmore said. &ldquo;People are being foreclosed on, but other savvy investors will understand how to take advantage of those ups and downs.&rdquo;</span></p>

<p><span style=”font-weight: 400;”>Changes in working and shopping behavior resulting from the global coronavirus pandemic have taken their toll on retail and office properties, making multifamily real estate the safest investment, Whitmore said.</span></p>

<p><span style=”font-weight: 400;”>&ldquo;Retail is at a crossroads &mdash; COVID had a huge impact on that,&rdquo; Whitmore said. &ldquo;Brick-and-mortar stores are closing and going bankrupt. When you&rsquo;re talking about big boxes of 20,000 to 40,000 square feet or higher, those properties are really going to struggle, which impacts the whole economy. There&rsquo;s less movement of money and less real estate taxes being paid.&rdquo;</span></p>

<p><span style=”font-weight: 400;”>Whitmore predicts that many shopping malls &mdash; a sector he said is dying &mdash; will be repurposed into office space or multifamily communities. Even so, neighborhood shopping centers that offer dining and entertainment will continue to perform well.</span></p>

<p><span style=”font-weight: 400;”>&ldquo;I don&rsquo;t think retail has gone away, but the market is certainly shifting,&rdquo; he said. &ldquo;There&rsquo;s a lot of competition with online shopping. Consumer preferences are changing. With inflation, people are spending less on physical items and spending more on travel, dining and entertainment.&rdquo;</span></p>

<p><span style=”font-weight: 400;”>While it could be a good time to invest in real estate, novice investors should consider real estate syndication, where a group of investors collectively raise capital to buy commercial real estate or build a new project, Whitmore said.</span></p>

<p><span style=”font-weight: 400;”>Companies like Precision Equity take a value-added investment approach that focuses on acquiring underperforming multifamily assets in markets that are supply constrained. Crowdfunding platforms like Yieldstreet allow investors to participate in a wide array of alternative investments, including real estate.</span></p>

<p><span style=”font-weight: 400;”>The benefits of investing in real estate are that it historically has outperformed U.S. equities, it&rsquo;s a natural hedge against inflation and it offers income and growth opportunities.</span></p>

<p><span style=”font-weight: 400;”>&ldquo;If it&rsquo;s your first time, get your feet wet with someone who has done it, and invest into a pool,&rdquo; Whitmore said.</span></p>

<p><strong>More on Real Estate from Benzinga</strong></p>


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