2020 October Update - Trick or Treat?

Market Update

The multifamily sector continues to show resiliency. Vacancy rates have only risen 0.6% year over year to a current 4.6%. Rental rates have softened only 0.6% year over year as well. Most of this rental softening has been seen in the coastal cities while less expensive markets have shown stabilization. The number of listed properties for sale is also on the rise. The NMHC stated rent collections ending September 27th was at 92.2%. This is 1.5% less than September 2019 but up slightly from August’s 2020 rent payment of 92.1%. For further perspective the 7.8% that was unable to pay amounts to roughly 200,000 households unable to pay rent in the month of September. With COVID hitting news from the Presidency to general rising case numbers, and an aid package still in flux, there is going to be stress on renters and property owners yet to come. The chart below shows where multifamily rents are growing.

Industrial properties continue to show strength. The properties that find themselves located on last mile delivery routes have become the darlings of the COVID era. The store-based retail sector continues to struggle as a whole, while e-commerce sets record growth rates. It has been predicted New York City alone might lose 12,000 restaurants. Hospitality suffered a drop in demand of 70% since April; however, in the last month there has some recovery with demand down only 60%. Office space continues to be wrought with uncertainty. Large corporations are extending the work at home options for employees into mid-2021. One company I know who has a WeWork office in Seattle states it is often just their small company and the cleaning crew on the entire floor. I feel there will be some type of a return to offices, just not sure what that will look like or whether it will be based in downtown metropolitan areas. “Only Full-time work from home reduces office demand.” 

Fund Update

For the month of September, all the properties are on schedule for meeting their renovation plans. Deal flow continues to grow as we are consistently onboarding new brokers and lenders. We are seeing a few light industrial properties and some mixed use come through the pipeline but primarily we are still focused on multifamily properties given the macro environment. 

Investment Corner

I was reading through a CAIA publication called the “Journal of Alternative Investments” and came across a great article called “Real Estate Returns”. Part of the article went into how real estate added to an investment portfolio provides diversification. I think that is an important factor to keep in mind as you build out your own investment portfolio. Below is a chart showing the correlations across broad investment categories. Hopefully, this helps explain how historically real estate and many traditional investments do not have a similar pattern of return.

Thank you again to our investors! Your continued support is what makes this possible. I look forward to catching up in person later this month.