Now that we’ve got the naughty and nice thing out of the way, it’s time to close off the year and welcome in a new one. 2022 has certainly been an eventful one—inflation, interest rates, and a cooling economy—but as investors, we must be prepared for all real estate seasons, both good and challenging.
As we close off the year, we wanted to highlight some of the best practices owners and investors are thinking about in the new year. These resolutions form the backbone of how we will operate in 2023 as we face recessionary headwinds and market uncertainty.
So, if you need improvement in your investing hygiene, your…
Resolution #1: Get NOI-centric: Smart money goes to smart tech
With depressing real estate values and moderating rent prices, 2023 will be the year of NOI maximization. We are lucky enough to have an industry with a thriving innovation ecosystem, with property technology startups solving everything from access control to tenant management to parking.
In 2023 we will all learn to delegate more. Not to employees and contractors though, but to technology.
Resolution #2: I will build for scale
The next few years may go down in history as the best time to acquire real estate assets. Many over-leveraged assets and interest rate sensitive investments will feel the pinch of an economic downturn, decelerated rent increases, and rising debt costs.
Although we never wish ill on any owner or investor, the upside to this pain will be an increase in the supply of distressed and well-priced assets. Investors who position themselves to scale will find more opportunities in the coming years than ever before. To help build for scale, see resolution #1.
Resolution #3: I will accept the new interest rate reality
The days of near-zero percent interest rates are over. If you haven’t already, investors should be stress-testing more realistic interest rates.
Current experts are pegging realistic debt rates at around 6-7% over the coming years. No more free money, and we better be prepared. Proformas should be adjusted for conservative projections of a few more rate increases in 2023, it’s good investment hygiene.
Resolution #4: I will get more involved
Laws keep changing, so why should multifamily investors and owners? There is a growing trend to reduce regulatory burdens associated with building. The only way to solve affordability is to build more, and the only way to build more is to reduce the barriers to building. And those barriers are significant.
Despite the progress to date, more needs to be done. As a group, multifamily operators need to push the agenda of smarter land use planning, zoning, and development charges. Find ways to contribute to industry groups, local groups, and get educated on the ways we can all encourage sensible rules around putting more people inside homes.