The real estate market ebbs and flows. The main reason for this pattern comes down to three fundamental variables — interest rates, supply and demand and investor sentiment.
At the end of 2019, the real estate market was thriving. According to a survey by Deloitte, real estate industry pundits were particularly optimistic about the performance of the industry over the next 18 months. The prediction made complete sense at the time since interest rates and supply were at a historical low and demand remained high.
Along came 2020 — a year where the U.S. suffered through devastating wildfires, flooding from hurricanes, a pandemic, social justice protests and an ugly presidential election.
With shutdowns and the shift to work-from-home, it would be easy to dismiss any suggestion that indicates potential growth for the commercial real estate industry.
Retail market segments that did not adapt to the rise of e-commerce were definitely at a loss. However, the truth of the matter is that there was no change in the underlying fundamentals of the industry since the recession was more event-driven. Although hotels and office properties had to adapt to the “new normal”, there was an opportunity to take advantage of temporarily mispriced assets.
Caliber, a full-service real estate investment company in the Southwest, continued to see growth despite the mayhem in 2020. The firm invests in a diverse portfolio of properties, including commercial, warehousing, multi-family, hospitality and tax-advantaged Opportunity Zones. It currently manages assets valued in excess of $375 million and has more than $275 million in equity.
Caliber made the news by featuring in the top Fastest-Growing Private Companies in America by Inc. 500 for the seventh straight year. In the 60 days between July 15 and September 15, the firm experienced a 47.95% increase in total private capital investment into its grouping of real estate funds compared to the prior 60-day period from May 15 to July 15. The total raised increased by approximately $732,238 from $1.57 million to $2.59 million.
In December 2020, the firm raised $9.9 million in capital for its private equity real estate funds which is an 819% increase or roughly 9 times that of the average monthly capital raised during the trailing nine months (between March and November).
The main reason for the increase in capital raise volume was the interest driven towards the Caliber Tax-Advantaged Opportunity Zone Fund, LP. Featured in the White House OZ Best Practices Report, the fund not only provides diversified exposure to real estate and tax benefits but also helps invest in America’s local communities.
“Caliber is hearing from its private clients and registered investment advisors alike,” says Chris Loeffler, CEO and co-founder of Caliber. “All good opportunities in real estate make sense in the current environment, and while not all asset classes are created equal, there appears to be significant support coming back into the market for further investment.”
Reasons for Growth in the Real Estate Industry
The improvement in expectations for real estate investment following the pandemic was because of the following reasons:
Higher Yield Than Bonds
Bond yields are a fraction of what they have historically paid. Record-low rates, higher inflation and typical capital gains taxation imply poor returns on bonds.
In the case of real estate, since prices have plunged because of the pandemic, you may be able to find a cash-flowing property at an attractive value. After the economy improves, you may realize both the cashflow benefit and the potential price appreciation.
Potentially Higher Growth Than Stocks
The stock market is highly volatile. On June 30, 2020, U.S. stocks’ long-term price-to-earnings ratio suggested that stocks were overvalued (32:1 from 30:1), and that forward returns may be flat to negative.
Investors looking for alternative growth opportunities can consider value-add real estate projects. These projects seek to complete renovations to stabilize a property to charge higher rents. This allows investors the potential to realize an attractive total return and generate cash flow along the way.
Property prices fell immediately because of the pandemic. But this calamity gifted investors a rare opportunity to pick up properties at below-market prices.
With industry leaders like JPMorgan Chase CEO Jaime Dimon and Netflix CEO Reed Hastings expressing a desire to bring employees back to the office, it’s only a matter of time until property prices start shooting up again. Investors can leverage the current market conditions knowing that the market will recover and potentially thrive.
The presidential election was consequential in many ways. With the Biden administration keen to undo much of what was done by its predecessor, one Trump initiative was considered a potential boost — the opportunity zone program. The program offers multipart capital gains tax breaks on funds invested into certain lower-income zip codes.
The Democrats like the program’s potential to draw investment to poor neighborhoods, and Republicans are on board because it’s built on tax breaks and private enterprise. The program appeals to social impact-minded investors and those looking to reduce tax liabilities.
Caliber’s Upcoming Reg A+ Offering
With a 12-year track record of growth and a 21% compounded annual growth rate (CAGR) since 2016, Caliber plans to grow and seize the capital markets and real estate opportunities.
The firm’s upcoming Reg A+ offering provides an opportunity for anyone to access a sophisticated, private real estate investment that has usually been reserved for high-net-worth investors.
Now even non-accredited investors have the opportunity to join other Caliber owners by investing before the round closes on Feb 26, 2021. Learn more!
(Caliber is offering securities through the use of an Offering Statement that has been qualified by the Securities and Exchange Commission under Tier II of Regulation A. A copy of the Final Offering Circular that forms a part of the Offering Statement may be obtained from Caliber: https://www.seedinvest.com/calibercos)
Photo by Avi Waxman
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