🧐 The truth about multifamily in 2024

👋 Hello, Best Ever Community!

In today’s newsletter, we hold 2024 multifamily projections to the fire, Joe Fairless talks to brokers, and an industrial warehouse nets a $4.1 million profit. 

Plus, if you have a deal or platform that needs funding, apply today to pitch it live on stage to 1,000+ investors at the Best Ever Conference. It’s free to apply and two winners will receive hundreds of thousands in investment dollars, plus bragging rights for life. Hurry! Applications are due January 31.

Here we go!

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CRE HEADLINES

☀️ Economists See Bright Skies: Most economists polled by the National Association of Business Economics predict the U.S. economy will avoid a recession in the coming year.

🔋 Southeast's 'Battery Belt' Boom: The Inflation Reduction Act’s incentives have spurred roughly 77 EV projects, spiking demand for housing, warehouses, retail space, and additional manufacturing facilities.

✨ Multifamily Market Wishes Granted: A recent CBRE report reveals that cap rate spreads are tightening, and Fed interest rate cuts are expected to enhance the appeal of multifamily to investors.

⚔️ WeWork Slashes $3.7B Expenses: Two and a half months post-bankruptcy filing, WeWork is making headway toward restructuring its numerous leases. But it has a long way to go.

📉 Steep CRE Declines: IMF warns of a record decline in U.S. commercial real estate prices, surpassing previous rate-hike losses from the last 50 years.

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THE TRUTH ABOUT MULTIFAMILY IN 2024

After a tumultuous 2023, real estate investors are hoping for a prosperous year in 2024. Projections are everywhere, and they’re wide-ranging. To help you make sense of it all, after reviewing several key reports, here are a few takeaways and implications worth considering (fluff not included).

📈 Debt Costs and Interest Rates: Between 2022 and 2023, the Fed raised interest rates 11 times. The Fed decided to hold off on an increase at the end of 2023, sparking rumors that rates will start to come down in 2024. However, even if rates do drop, it may come too late for several investors. There is an alarming amount of loans coming due, and rates likely won’t come down quickly enough for these projects. This will create problems for some investors, and opportunities for others.

📦 Rent Growth and Occupancy: Many multifamily projections predict modest rent growth and an increase in vacancy rates for multifamily this year. Freddie Mac Multifamily projects 2.5% rent growth nationally and 94.3% occupancy. Cushman and Wakefield calculates vacancy differently, projecting occupancy to fall from 92.2% to 91% in 2024. The consensus is that the fundamentals for multifamily remain strong and rent growth should pick back up in 2025 or 2026.

🏘 Supply Surplus: One of the biggest drivers of slowed rent growth and lower occupancy is a surplus of supply coming online. In 2023, there were 440,000 new apartment units delivered, according to a report by RealPage. This marks the highest number of completions in 36 years. Currently, there are over 1.2 million units under construction. RealPage estimates that over 670,000 units will be delivered in 2024, while Yardi Matrix projects deliveries of 510,000 units. Either way, 2024 is likely to set a new high for deliveries, and this will have a big impact on absorption and rent growth.

What It All Means

The numbers are the numbers, the rates are the rates. Regardless of the data, 2024 will be ... whatever you make it. Pay attention to projections and predictions from reputable sources, but don't live and die by them. Choose the metrics that matter to your specific strategy, stress-test them against your business plan, and more than anything, be realistic. Instead of trying to time the market based on predictions for 2024, the most successful investors are focused on investing with an outlook for the long haul.

👉 Read the full analysis from John Casmon here.

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TRUMP/BIDEN VS. CRE

Last week, we asked you which Presidency you think will benefit CRE investors more over the next four years. Here’s what some of you had to say:

🔴 “When Trump was in office, he gave us very generous tax breaks for bonus depreciation. He introduced us to additional tax breaks for revitalizing depressed neighborhoods by renaming them ‘Opportunity Zones.’”

🔵 “Trump inherited a strong economy and left office with the economy in the ditch. … When the economy is doing well, why on earth would you replace Biden with a former President who has already demonstrated incompetence in the job?”

🔴 “Trump understands and supports policy in favor of capitalism as opposed to larger government overreach, which will absolutely result in higher tax liability, which will come from the middle and upper class.”

🔵 “Trump is too volatile!”

Didn’t get to weigh in last week? Join the discussion here. 

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FROM JOE FAIRLESS

A great broker sends you deals — specifically, off-market deals. However, like all relationships, this one must be reciprocal. Most likely, the broker will have countless investors asking them for deals. When approaching a conversation with a new broker, it's important to realize that they're interviewing you as much as you're interviewing them. Here’s how you can win the broker over by focusing on coming across as a serious, credible investor who will close a deal. 

🙋 Questions to Ask the Broker: Your main goal should be to determine their level of experience and success with properties that are comparable to your investment criteria. What is their transaction volume? How many successful closes have they experienced in the last year? How long have they been working as an agent? How long have they focused on this type of property?

🏆 How Do I Win Over a Broker? To win over a broker during a conversation, you need to sell yourself and your business, and build rapport. If you have past investing experience, you shouldn’t have an issue selling yourself. If you don’t, however, what relevant experience do you have that will convey to the broker that you are serious about closing deals? Have you successfully completed projects in a non-real estate-related field? Have you started a business in the past? If you're struggling to come up with relevant experiences, this is where having a reputable team comes into play.

✏️ Questions to Be Prepared to Answer: If the broker is seriously interested in bringing you on as a client, they will want to ask you questions as well. You need to proactively brainstorm questions they may ask and have ready-made answers. They might ask who your property management company is, if you (or someone on your team) have purchased a commercial property before, or what type of deals you’re looking for.

As you interview brokers, if you’re asked questions you’re not prepared to answer, make a note and tell them you’ll find that answer right after the meeting and send it to them.

👉 View the complete article here.

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INDUSTRIAL WAREHOUSE NETS $4.1M PROFIT

Andrew Sinclair and Midloch Investment Partners delivered 45.3% IRR and 1.65x equity multiple on this deal in less than two years. Here's how they did it. 👇

🏢 Property Details: 218,899 sq. ft. industrial warehouse and distribution facility with seven tenant spaces purchased in Minneapolis in January 2022. 

💸 Finances: Purchase price was $11.3 million with a $7.3 million five-year fixed-rate loan with a Minneapolis-based bank at 3.35%. 35% equity raised and invested.

💼 Business Plan: Modest upgrades and occupancy maintenance.

🍾 Results: Sold in May 2023 for $15.4 million. 45.3% IRR and 1.65x equity multiple in less than two years.

If you have a deal you'd like us to feature, share it with us!

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VIP ACCESS TO THE BEST MINDS IN CRE

People come to the Best Ever Conference in pursuit of life-changing outcomes. Whether it’s discovering a nugget of wisdom that is the last puzzle piece to a new endeavor, or starting a relationship that turns into a fruitful partnership — that’s the value of attending.

And we intentionally apply this idea tenfold for our VIP ticket holders.

At most events. VIP means perks like special gifts and elevated food. And while you'll get all of that, the true value of a VIP ticket to BEC2024 is in uncompetitive, unfettered access to more wisdom and more opportunity with:

• Individual coaching with the team that coached Joe Fairless

• An exclusive behind-the-scenes property tour of a high-rise in downtown Salt Lake City

• Intimate breakfasts with keynote speakers

• A night out in a reserved space just for speakers and VIPs to connect

That type of access is priceless. That’s why more than half of our VIP tickets are already sold.

If you’re serious about maximizing opportunities in 2024 and beyond, 
secure your VIP pass today before they sell out. 

🙏 Thanks for reading!

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Have a Best Ever day!

—Joe Fairless