The Upside: A Window of Opportunity in a Recession

Aug 2022
A street with palm trees and cars parked on the side.

Bayou Oaks, Sarasota, FL

Hope you are having a good week thus far. Hard to believe the kiddos are heading back to school over the next few weeks.  Summer seems to be just getting started down here in Florida!  I don’t know about you but we love this time of year to enjoy some pool time in the evenings as a family.  A good opportunity to recap a busy day!


Without writing a book, here’s the short version. We’re in a recession. The Fed’s rate increases have effectively slowed down the economy, slowed down inflation, and popped the asset valuation bubble that had started to build in stocks and real estate. In my view, everything is working just as expected. I’m a little concerned that the minute we see progress, Congress wants to turn around and start taxing and spending as though we’re not in a recession and inflation isn’t an issue. Not smart in my opinion. But overall, we’re seeing great progress to slow inflation while allowing wage growth to continue rising. We like measured wage growth because without it our residents can’t afford our rents.


To break it down in more detail, the drastic increase in interest rates has caused the cost of owning a home to increase by 38% during the same time period that rents increased by 17%. That means apartments are a much better economic answer for more folks than ever before. On the flip side, the rapid increase in home prices has come to a screeching halt. Multifamily, too, has seen similar trends as an increasing number of buyers step to the sidelines while they wait it out. As I’ve said before, this is a 6-12 month window of opportunity for those who have the skill and fortitude to step forward and make things happen.


Employment continues the tear!  Unemployment is still incredibly low, workers are super hard to find, and wages are up!  This is great news for multifamily.  Our business is booming.  Notice I said business.  Not valuation.  Business.  We run a real estate business.  People, paychecks, and profit.  Our friends at Freddie Mac (one of the two behemoths in this space) noted that fundamentals are strong, occupancy remains at historic highs, NOI is expected to increase 7% this year, and due to muted construction, absorption rates will most likely outperform.


Buying cash flowing stabilized assets that have double digit cash returns and have no value add is basically impossible in today’s market. And the risk is pretty high because you’ve got one arrow in the quiver – organic rent growth.  As an investor, I would recommend looking for deals that provide management upside, rent upside, and renovation upside.  Executing on that plan takes experience, diligence, and conservatism.  It’s a total package.


On the travel front I just returned from visiting fellow partners and investors up in Illinois. Tomorrow, I’m headed to San Antonio to get an update on our development deal (updates coming soon), our second development deal (exciting), our value-add deal that’s closing September 9 (Marbach Park), and discuss floor plans as we start designing our very own “REM” building footprint that will eventually be the baseline for our planned national development roll-out.  I believe there is an opportunity to do some unique things in our space with regard to the resident experience and I’m looking forward to continuing our unique value proposition as we grow the development side of our portfolio.

In case you missed it last week, just reposting the link here.  I was honored to be on M.C. Laubscher’s podcast Cashflow Ninja.  Really enjoyed the time with a super smart guy who has a big heart as we talked all things multifamily.

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