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April Showers may or may not Bring Flowers 🌷 | April 2024 Newsletter

Optimism was in the air. The economy was looking better to kick off the year as inflation began to cool, Fed rate cuts were on the horizon and investors started getting ready to deploy capital. Then the March economic data came out hotter than expected, causing continued hesitation and surely more uncertainty. As soon as we felt like we had a grasp on the economy and were coming through the other side, we realized we are in the same position as before.

What does this mean for real estate?

Heading into Q2 of 2024, there was a lot of excitement to see interest rates trend down. The word on the street was 3 cuts were coming in the middle of this year with hopes for more. This would have reignited a transaction market that has been tremendously sluggish, but the Fed's latest tone was rates are to remain where they are with a chance to increase them if inflation remains hot. Treasuries have jumped 0.75% over the past month which means continued stagnation in real estate. 

On the same note, operating costs remain high with increased insurance premiums, expensive utilities and costly repairs & maintenance being at the forefront. Pairing that with high interest rates means super low margins for owners. The spread between a property's income and expenses is narrowing. 

Where is the incentive to own unless you can purchase assets that are price adjusted to account for the increased cost of ownership?

Although there is a negative undertone in real estate, we are optimistic in the long term. If we can capitalize on the beaten up market, find real opportunities where we can mitigate risk as best we can, protect our downside and still achieve above market returns, then we will own buildings at a significantly better cost basis in the long run. Our theory has been and remains that it is all about buying the right assets at the right price, finding value with an executable business plan. That is how we will continue to grow our portfolio.

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