It’s time.
It’s time to start buying real estate.
Commercial real estate.
That’s right, the asset class everybody hates and thinks will collapse the banking system, the government, and everything except companies that make AI-related semiconductor chips.
The media hates it.
The clickbait hunters love the stuff because it is so easy to craft doom-and-gloom marketing measures around empty offices and defaulted loans.
But the truth is, now is the perfect time to start buying. Here’s why…
Don’t get me wrong.
We have not seen the end of the ugly headlines by any stretch of the imagination.
Downtown office towers are still going to have some problems.
Some of the overleveraged ones will still be working their way through the stages of foreclosure.
Most are still in disbelief, with bargaining, plotting, pleading, begging, and throwing the keys at the lender’s head in disgust still to come.
We could have months of ugly headlines from the office sector.
Most troubled properties will be big city center city towers in gateway markets.
Class B and C apartments may have some problems as well.
Is it really the bottom? The absolute bottom in real estate?
I doubt it. I have never picked an absolute top or bottom; I suspect that will not change anytime soon.
We could see lower prices before the markets reverse and go higher.
It may be months, or even a year or more, before the markets start to get excited about commercial real estate again.
I prefer it that way.
The longer it takes, the more time I have to find and buy quality real estate-related opportunities.
I do not know when the absolute bottom in real estate will be.
Here is what I do know:
Big and tech companies are starting to push for workers to return.
The vast majority of people will not quit a good-paying job to avoid commuting.
Class A offices are filling up as tenants use the current market weakness to upgrade.
The same flight to quality is happening in cities large and small when it comes to apartments and rental housing.
The migration to states with warm weather and lower taxes will continue.
People with good jobs and full bank accounts will still go shopping.
The very best malls, both indoor and outdoor, will continue to thrive
We will still go to pharmacies, grocery stores, and other necessary retail locations.
Our national fascination and attachment to “stuff” will keep the self-storage facilities full.
People who have discovered and fully embraced the lazy delights of shopping from home will keep warehouses in high demand.
The lessons of the pandemic’s early days will continue to drive demand for new local warehouse space for many retailers.
Some commercial real estate loans will default. Most will not.
So far, I am finding opportunities for my members and myself in high-quality REITs, real estate, corporate debt, preferred stocks, closed-end funds, homebuilders, and real estate services companies.
I strongly prefer opportunities that throw off a lot of cash.
Cash coming in the door makes it much easier to wait for prices to settle down and begin to head higher again.
While only a few people are moving to buy real estate right now, I am not entirely alone.
Jonathan Gray, the President of Blackstone, recently said, “The perception is so negative, and yet the value decline has occurred, so when you get into this bottoming period, that’s when you want to move.”
He added “As investors, sometimes, one of the risks is that you miss it by being overly cautious, and I think now is probably a good time before rates come down.”
Blackstone is one of the world’s largest owners of commercial real estate properties. I think they might know what they are talking about regarding the opportunity I see developing in commercial properties.
I will hold most of the assets and companies I am buying today until everyone wants to own real estate, and real estate speculation promotions have replaced all the options trading ads.
There are a few world-class assets that I suspect I will hold forever.
Many debt-related investments will be sold at a premium when real estate is upgraded, or the Fed cuts rates.
We could see a double whammy that delivers a two-for-one pop in the price of real estate-related debt over the next year or two.
I don’t know when the exact bottom will occur in real estate.
However, I am absolutely certain that in a few years, my readers and I will be very happy with the high-quality, high-grade real estate investments we are making today.
— Tim Melvin
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Source: Investors Alley