Our View of the Market Q1 2024

Honestly, we don’t think that’s a question anyone can answer right now. We, however, have multiple strategies to deploy depending on what transpires across the larger economy. For that reason, we remain extremely bullish on our prospects to identify opportunities in 2024 and beyond.

Looking at the big picture of the real estate market and macroeconomy, we believe the following:

1. Our decisions up to this point have put us in a unique position to take advantage of the uncertainty and disruption in the marketplace. These decisions include acquiring real estate with a long-term perspective, specifically placing long-term moderate leverage fixed rate debt.
   
   
2. We acknowledge that we cannot control outcomes. Instead, we focus on controlling the assets, financial structures, markets, and people we work with. As all participants realized in the 2022-2023 tightening cycle, we can’t fight the FED-driven interest rate cycle. What we can do is aim to create value by selecting quality assets in markets with strong fundamentals. By doing so we position ourselves to execute our business plan to position our investments to capitalize on the next appreciation cycle effectively.
   
   
3. As a team, we've discovered that within every economic cycle, winners emerge. It's our task to identify where and how to find them. In fact, given Corban and Mario’s depth of experience ranging from distressed to performing assets, Georgetown Partners is well positioned to identify opportunities for our investors in any market condition.

For most of 2023, the investment community anticipated further “challenges” for the real estate industry. These “challenges” are largely the result of an expectation that interest rates will stay “higher for longer.” In our opinion, interest rates and, by extension, FED policy have become the single most important element of the investment market. Therefore, explicit changes to FED policy contribute greatly to market sentiment and investment outlooks.

We believe that capital flows are the foundational layer of the investment market. This “flow of energy” determines which assets appreciate and which stagnate or fall out of favor. Liquidity and the velocity of money drive investable assets. We saw unprecedented capital appreciation across asset classes (real estate, equities, and crypto) as the effect of the FED’s various interventions aimed at supporting the economy largely via interest rate cuts and Quantitative Easing.

The “too good to be true” growth expectations as COVID fears subsided quickly shriveled away once cost inflation forced the FED to aggressively raise interest rates (in relative terms) in an abbreviated time frame. The FED made a strong pivot by March 2022 as it increased the Federal Funds Rate to 50 bps from 25 bps, marking the first rate increase since 2018 while simultaneously reducing its Quantitative Easing (a program designed to enhance market liquidity and support values by directly acquiring assets) by April 2022.

Fast forward to July 2023 and the FED elected to increase the Federal Funds Rate to 5.50%. Now, in January 2024, the FED has seemingly pivoted once more. Although they have not explicitly restarted Quantitative Easing, they have ceased their Quantitative Tightening efforts and started to posture toward decreasing interest rates once more. We could argue that this is inevitable for many reasons but, most importantly, this signifies a shifting point in investor sentiment.

If the FED does, indeed, cut rates in 2024, we will take the approach of investing in traditional value-add and ground-up multifamily, as debt will be accretive to pricing. We still believe in the housing crisis issues that most Americans are facing. There is a record amount of capital sitting on the sidelines waiting for a market recovery.

Alternatively, if the economy comes in for a harder landing than originally thought, we are still in an advantageous position as we will seek to capitalize on our ability to identify and execute on distressed opportunities. If the FED does not cut rates, there is $2.6 trillion in total CRE debt maturing through 2028. In 2024 alone, $49 billion in multifamily debt maturity will need to be refinanced or worked out. This wave of maturities in 2024 through 2028 will create an opportunity for special situation investment. We are actively tracking debt maturities in certain markets to see where we can capitalize on these troubled assets.