Your Weekly Wrap Up CRE Newsletter Inside - #2

Weekly Wrap-Up CRE Newsletter #2

Please enjoy Prosperity CRE’s weekly newsletter designed to keep you informed and engaged with timely commercial real estate issues and data, and other points of interest.

JP Morgan Chase & Co.: Real Estate with Outperform Stocks in 2022

JPMorgan Chase & Co. advises investors with cash to invest in real estate and hedge funds, as traditional assets like stocks and bonds will underperform next year. They predict these “alternative assets” will return 11% next year, double the 5% gain from the universe of stocks and fixed income. https://pcre.xyz/92t

New Research Confirms What We’ve Known: CRE is a Good Hedge Against Inflation

A new research report by Berkadia titled A Better Way to Assess Inflation and Risk in Real Estate confirms that U.S. private CRE risk-adjusted returns tend to be larger during times of high inflation. Post-Great Financial Crisis, higher inflation tends to help the asset class’s excess returns. https://pcre.xyz/tx8

The $1 Trillion Infrastructure Bill Paves the Way for Billions of Dollars to Pour Into CRE

A $50B provision in the bill to improve resilience against extreme weather and national disasters and the environmental remediation component could both directly impact or create commercial real estate projects. And a $1B fund for reconnecting communities, most likely to be neighborhoods of color, separated or otherwise disrupted by highways and other pieces of infrastructure in the 20th century, could also have an outsized impact on commercial real estate, CNN reports. https://pcre.xyz/ser

Office Sector Continues to Outperform
How the Homebuying Spike Boosts Multifamily

The shortage of single-family housing production and relatively disciplined multifamily construction through August kept real apartment rents at or near historical highs in most markets. Economist Dr. Peter Linneman explains how, just as Ford and GM generally both prosper at the same time, so too, success in single-family easily co-exists with strong multifamily performance. https://pcre.xyz/ztv

Capital Corner

Inflation is still on investors’ mind as CPI and job data come in. Multifamily investors are in a bit of a pickle when It comes to inflation as increasing or inflating rents are generally a good thing for the prospects of an apartment building's financials. That said, the impact that ongoing inflation and rising rents have on the consumer renter pool could prove problematic in the long run. Especially if wages or job growth do not rise alongside inflation. There is plenty of capital injected in the real estate capital markets for the time being to mask any lagging effects on the multifamily front, however.

In terms of exposure to inflationary effects, cash-flowing commercial real estate remains a solid hedge choice. Investments into commercial opportunities that cash flow, but have longer-term escalating leases, like well-located office or industrial, may help smooth some of the potentials for volatility or backlash due to rising residential rents.

Additionally, GlobeSt mentions that a Fed tapering in 2022 may bring with it an increase in bond prices and rising rates on fixed-rate debt, so if you are inclined to explore a capital preservation play via alternatives to multifamily, now may be the time to park some money into well located and risk-adjusted commercial properties with intermediate to long-term leases like office or industrial.