June 2023: The Changing Tides

LATEST NEWS

Upcoming Closing - Summers Run - Asheboro, NC

We are still working to close Summers Run in the coming weeks, but we've unfortunately hit a delay with the lender that we are still working through.

However, we're thrilled to say that the monthly rent roll is increasing, which you always love to see, and, thanks to everybody reading this newsletter, we are oversubscribed on the offering!

In the Media

Our appearance on The Passive Wealth Strategy Show was published in June. You can listen to the full podcast by clicking here.

WHAT WE ARE LOOKING FOR

‍As we mentioned in our last update, we view now as a great time to buy, if you can find the right financing. We're turning over every stone and looking at a wide array or assets, including many of the types we've listed before.

WHAT WE ARE FINDING

As I'm sure we've said before, we are starting to see more and more opportunities. In the past few weeks, we've seen multiple properties listed for sale because the current owner has floating rate debt north of 9%, causing the property to negatively cash flow.

While we still like assumption loan opportunities like Summers Run due to their below market interest rates, these distressed sales do present an opportunity to buy at a phenomenal basis.‍

MARKET INSIGHTS

Inflation Update!

Everybody loves the inflation updates (at least when it's going down). Fortunately, we've had back-to-back months of fairly good news. June's report showed inflation cut in half from last year's peak, and the July report, released earlier today, showed inflation hitting its lowest level in more than two years.

Will the Fed continue to raise rates despite this good news? While they paused at their last meeting, more are expected, which I find particularly frustrating given that they maintained that any impact from hikes would take 12-18 months to make an impact. Given that it's been fewer than 18 months since the first rate hike, and we've seen inflation fall from 9% to 3%, you'd think the Fed might at the very least stop the rate hikes. However, prior to this news, the Fed was also saying that inflation could take years to fight, so who can say what will happen next?

The Rents are Falling (in some places)

Nationwide rents in May declined 1% from May 2022, marking the first annual decline since March 2020. However, real estate is a very local market, so nationwide data isn't the most helpful thing. Looking deeper in the article, you can see that rents are only truly negative in the West. Rates of increase are slowing in the other regions (including the South), but they remain positive.

With a wave of new supply coming to many major metros, some are even saying that renters are about to get the upper hand. Time will tell on this one. This influx of new supply has led to the phrase, "survive until 25" gaining some popularity as owners try to cope with the influx of new supply.

The Pain is Here‍

After more than one year, the pain is really showing. Borrowing costs are up to 7% for new loans, and existing loans are hammering people. While there are real underlying issues with some properties (like office buildings), a lot of commercial real estate distress is related to the capital stack (again, due to floating rate debt and other structures). Distressed commercial assets swelled to $64 billion, with another $155 billion looming.

Many operators are trying to "extend and pretend" in order to outlast their bad loans, but that strategy is on shaky ground the longer things go. Some groups are warning about capital calls to try and keep prevent foreclosures.

New Accredited Investor Rules

Our friends at HoneyBricks have a great write up of the Equal Opportunity for All Investors Act of 2023 (catchy name, am I right?). In short, this law would allow more investors the opportunity to invest in non-publicly traded securities, like those offered by Matheson Capital. The bill has already passed the House of Representatives by a vote of 383-18, which I think we could call a fairly good start.

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