White and Brown Concrete Building

The 2024 Multifamily and Commercial Real Estate Forecast from Commercial Property Advisors

Peter Harris and Julia Sheean from Commercial Property Advisors (CPA) discuss the outlook of commercial real estate for the year to come in the US. See the summary of their forecast:

2024 Interest Rates: Predictions suggest that interest rates will likely drop in 2024. The forecast attributes this potential drop to an election year strategy, anticipating a move by the president to boost the economy and secure re-election by lowering interest rates.

Multifamily Market Stability: Expectations are that the multifamily market will remain strong in terms of pricing and rents. The analysis points to the continued demand for rental properties, driven by high home prices and economic factors, leading to an increase in long-term renters.

Impact of Maturing Multifamily Loans: The market may witness distress in the multifamily sector due to maturing loans, with an estimated $49 billion worth of loans set to mature in 2024. The prediction suggests potential opportunities for investors as distressed properties become available, particularly in value-added deals.

Dynamics of Other Real Estate Sectors: Self-storage and industrial flex space are anticipated to perform well in 2024. The self-storage sector is expected to benefit from downsizing trends during economic uncertainties. Industrial flex space, driven by the growth of e-commerce, is seen as a strong investment.

Office Market Challenges and Opportunities: The office market faces challenges, with high vacancy rates, especially in C-Class office buildings. However, opportunities may arise in repositioning and upgrading A-Class office buildings, requiring significant capital investment.

2024 Economy and Consumer Sentiment: Consumer sentiment is noted as a crucial factor in the economic outlook. The analysis suggests that the average consumer might feel hesitant or fearful about the economy. Despite this, the overall sentiment is seen as an opportunity for commercial real estate investors to capitalize on potential deals.

Investment Wisdom: The advice for investors in an uncertain market includes actively seeking opportunities, becoming a continuous learner in real estate, and seeking mentorship or professional guidance. The emphasis is on making informed decisions, especially in a market with potential opportunities for those who are well-prepared and strategic.

Focus on Income, Appreciation, and Depreciation: The key focus for investors in 2024 is on investments that provide a combination of income, appreciation, and depreciation. This three-pronged approach is highlighted as crucial for long-term wealth building and financial success.

Closing Remarks: The video concludes by urging viewers to focus on opportunities in 2024 that align with the principles of income, appreciation, and depreciation. The overall tone remains optimistic, labeling 2024 as the “Year of Opportunity” for commercial real estate investors.

people discuss about graphs and rates

The 4 Types of Successful Apartment Investors

You may find many articles on how to buy apartment buildings. It seems easy after all…

But what if you follow all these steps only to find out that you have overpaid, you get no or negative cash flows and that you will lose money when you dispose of the property…

The one-size-fits-all method for regret

man comforting crying sorrowful woman with hands together
  1. Find a good property
  2. Get it under contract
  3. Do the inspections
  4. Get bank financing
  5. Hire a local property manager
  6. Close the deal
  7. Realize the deal was not that good and/or did not fit into your strategy and/or was outside your skill set!

The Builder

man wearing black denim pants with carrying hammer on holster
  1. Buy the property
  2. Renovate the buildings and amenities
  3. Stabilize the income and tenant turnover
  4. Improve the Net Operating Income to show strong cash flow during a 12-month period (seasoning)
  5. Refinance to cash-out the forced appreciation gained through the improvements
  6. Repeat the process

The Holder

man and woman walks on dock
  1. Buy the property
  2. Renovate the buildings and amenities
  3. Stabilize the income and tenant turnover
  4. Live off totally or partially from the strong cash flows
  5. Keep the property as a long-term investment (passive income)

The Exchanger

contemporary tall building with glass facade
  1. Buy the property
  2. Renovate the buildings and amenities
  3. Stabilize the income and tenant turnover
  4. Enjoy the strong cash flows on the medium term
  5. Sell the property to cash in the forced appreciation
  6. Immediately reinvest the proceeds tax-efficiently for a larger property
  7. Repeat and enjoy the snowball effect and the deferred taxation

The Syndicator

woman in white long sleeve shirt standing beside woman in white long sleeve shirt
  1. Have relationships in place to find and convince partners
  2. Extensive legal documentation to have in place (especially if the deal falls under security laws) to highlight rights and duties of the parties involved and the strategy
  3. Buy the property with investors
  4. Renovate the buildings and amenities
  5. Stabilize the income and tenant turnover
  6. Improve the Net Operating Income to show strong cash flow during a 12-month period (seasoning)
  7. Collect fees at the different stage of the scheme
  8. Exit / Sell the property
  9. Pay back the investors with the proceeds
  10. Repeat with another deal

Challenge the numbers from the seller or their agent (past vs present)

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  1. Income : add the vacancy rate of the area to decrease potential income
  2. Expenses: do not use the standard 30% rule, know your market to find the relevant cost per unit
  3. Net Operating Income : to recalculate with the adjusted income and expenses
  4. Cap Rate : may be accurate from the start but to be checked with recent transactions
  5. Property Value: greatly revised down when income and expenses adjustments are factored in
  6. Use this value as a base for your offer

Prepare a pro-forma to find out projected values (future)

man using a laptop
  1. Income : do your research to find the potential rent increase per unit
  2. Expenses: use the relevant figure per unit in the market (same as when adjusting the seller’s figures)
  3. Net Operating Income : to recalculate with the rent increases and correct expenses
  4. Cap Rate : conservatively keep the same current rate
  5. Property Value : derive the potential future value given the projected Net Operating Income
  6. You just found out the upside potential of the deal

To sum up

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  1. You verify the numbers (past vs present vs future), if you cannot, do not go further
  2. A goal : buying under-priced properties, in a good location, with the ability to raise rents
  3. Know what type of investor you want to be
  4. In-depth description of the four investment strategies will be provided in further articles
Acknowledgements

Peter Harris from Commercial Property Advisors in this video