How CRE Investors Can Still Create Value Amidst Rising Rates

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As we’ve covered in the last couple weeks, the current trend seems to be moving towards the buyer’s direction. Rising rates and other consequences from inflation are certainly a motivating factor. However, that does not mean there is no room for the average investor to make money. This is particularly true for CRE (Commercial Real Estate) investors. There’s always money to be made in the real estate market, that is, if you’re a seasoned and skilled buyer.

“You can’t add value to bonds — and unless you own a VC firm or you’re Warren Buffett or Elon Musk, you really can’t create value by owning stocks. Other than owning a company or a franchise, only real estate allows investors to roll up their sleeves, either physically or metaphorically, and create value in an investment.”
-John Chang, Marcus & Millichap

Not only that, but in the CRE marketplace specifically, investors have so many options. From REITs, REIGs, non-traded REIT sponsors, mini-tender offers, all the way to even direct CRE property management. The latter is what Chang illuded to in his quote above. Having a “do it yourself” attitude in real estate can allow to you avoid hiring FTE’s. Thus, you’re much more likely to have room for a positive return. What will every intelligent macroeconomist suggest to businesses when monetary policy is geared towards inflationary times, or a potential recession? Minimize business costs (Wan, CloserIQ). That applies directly to CRE investors too. If you can minimize your business cost, by acting as your own property manager for example, you are undoubtably more likely to succeed irrespective of turbulent financial times.

With an official from the Fed quoted as saying he sees the Fed raising rates through the end of 2023, investors should prepare for a tightening economy (Saphir & Dunsmuir, Reuters). Rising prices with relatively unchanged labor market conditions. If you invest in FX, that likely means the dollar will be disadvantaged. But in CRE, as in the whole real estate asset class, positive returns are always on the table. To reiterate, investors who are willing to cut costs will make out well in a recessionary economic period.