Adam Gottfried
To adapt Charles Dickens’ famous opening line for the private lending industry: it may not be the best of times, but it’s definitely NOT the worst of times. Certainly there’s a lot going on in the world right now – the war in Ukraine, the highest inflation in forty years, a volatile rate environment, supply chain challenges, and, of course, the lingering concerns about COVID. But at the Single Family Rental Summit in Dallas, TX a few days ago, the mood was clearly optimistic.
I spoke on two panels at the conference (my first in-person event since COVID started). Here are my takeaways and learnings from the event.
The fundamentals of real estate are strong
Talking to other attendees, it was clear that today’s environment is significantly different from the crisis of 2008, when we were on the brink of a financial meltdown. Today, while people want to be prudent about how they move forward, they are very optimistic about the future.
Why so much optimism?
Because the fundamentals of real estate investing have never been stronger:
- Employment is at an all time high.
- Vacancies are at an all time low.
- Values and rents are going up.
- Demand for housing is rising, even as supply continues to be short.
- Historically cheap rates for homeowners (even though rates are rising, they’re still historically low compared to the last four decades).
Also, historically, real estate has been a hedge against inflation. Values of real estate rise in an inflationary environment, which is good news for the industry. Will this trend continue in today’s market? It’s too early to tell, but you can be sure that everyone is keeping an eye on this traditional correlation.
Roc Capital is uniquely positioned to be your trusted partner
At Roc Capital, we’re feeling optimistic too. As I explained to conference participants, we’re uniquely positioned to be a great partner to borrowers, especially in this rising rate market, thanks to our wide range of products, customer-friendly processes, and a comprehensive suite of services ranging from white label table funding to full back office support and a full technology suite. Above all, our focus on executing for our clients and ensuring their success.
“As a lender, we can only be successful if our borrowers are successful.”
We work with you to provide solutions for specific scenarios
Whatever your situation ( ), Roc Capital can help you close and help you achieve your stated business plan. We’re there for you all the way.
Strategies for 2022
“How should I strategize in this market?” was a theme I encountered again and again at the conference. The hardest time to gauge a market and make thoughtful decisions is in the middle of a cycle, where we seem to be right now. But making sure you understand the fundamentals of the market and your business can help you minimize risk and make the right decisions.
Watchouts for BTR
Lately I’ve been seeing a lot of deals coming through in the BTR (Build to Rent) segment, perhaps because people are getting creative about sourcing fix-and-flip homes. With today’s low vacancy rates, having a unit available today can work out economically. But if you’re building with the intention of renting, factors like today’s supply chain issues and shortages in labor and materials need to be factored in. You need to be able to forecast accurately, maybe 1.5 to 2 years into the future. One way to do that is to keep an eye on areas of future population growth, as well as absorption rates.
Materials and labor shortages
The supply chain issues that arose during the pandemic are likely to continue in the near future. Supply chain holdups are definitely a challenge, but the good thing is that they’re a challenge for everyone. I heard some great solutions to addressing supply chain shortages at the conference, such as standardizing materials or holding short-term supplies. Of course each individual operator needs to look at their pipeline and their business to determine what approach works for them. Being creative on the operating side and planning your business around supply chain constraints will position you to be ahead of the curve.
This is a quick-moving market. There are expectations that the Fed will raise rates again this year. We don’t yet know what the impact will be in terms of having a recession or not. There’s a lot up in the air with consumer confidence and the housing market. But with volatility comes opportunity. Those who are nimble will be able to take advantage of the opportunity. But if things end up slowing down, take heart in knowing that it’s a cycle, and things will speed back up again. Those who understand their business, make thoughtful decisions, and focus on the long term will be successful.
About the author
Adam Gottfried is a Director of Roc Capital’s Commercial Real Estate Group, which he joined in 2018. He is responsible for sourcing, evaluating, structuring, and asset managing across all lending products at Roc Capital. Prior to Roc Capital, Adam worked for Arbor Realty Trust’s Structured Finance group, and was on the Acquisitions team of Mack Cali. He received a B.S. degree in Management from Arizona State University, and an MBA from Baruch College.
