Hollywood – August 29, 2016

An August 2016 Bloomberg article quoted billionaire money manager, Bill Gross, as saying he would invest in real assets, including real estate, over stocks and bonds. In his “Monthly Investment Outlook” for Janus, he writes:

“Negative returns and principal losses in many asset categories are increasingly possible unless nominal growth rates reach acceptable levels. I don’t like bonds; I don’t like most stocks; I don’t like private equity. Real assets, such as land, gold and tangible plant and equipment at a discount are favored asset categories.”

He noted that central banks have not yet invested in real estate, or gold, and those are the investments that look strongest in the current climate.

Other money managers share his disdain for stocks and bonds, including DoubleLine Capital’s Jeffrey Gundlach, who said in July 2016:

“The artist Christopher Wool has a word painting, ‘Sell the house, sell the car, sell the kids.’ That’s exactly how I feel – sell everything. Nothing here looks good. The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.”

Several other money managers have shown an increasingly bearish approach to stocks, including George Soros, Carl Icahn and David Tepper, according to a recent article by CNBC, which highlighted some of these fund managers recent investment reallocations.

The case for real estate investment

As yields flatten or dip on stocks and bonds, many experts are pointing to real estate as a more secure investment.

U.S. News & World Report covered some of the basics of real estate investment in a July 2016 article, “Are You the Only One Not Investing in Real Estate,” saying:

“It’s a unique time for real estate investment as interest rates remain near historic lows following a housing crisis that began at the close of 2007 and a subsequent recession that wreaked havoc on residential and commercial real estate for the duration of the economic downturn. With real estate prices throughout the nation largely back at their pre-recession levels, investors have been bringing inventory left vacant in 2008 or 2009 back to the market and finding occupants.”

That article counsels new investors to do their research and to avoid investing everything in one real estate deal, which is great advice.

We know from our partnerships with investors that working with experienced, established operators who know a market well can also help a lot in terms of both education and support. (For more information about that, take a look at our investor platform.)

The U.S. News writer and another writer for Forbes both suggest that investors look at smaller, strong markets for investment opportunities. Forbes provided a list of 20 promising markets for real estate investment, supported by healthy economies and strong fundamentals. That list includes Atlanta, a metro area where we have developed several properties.

The case for multifamily properties We have talked about the strength of the multifamily market in past editions of the newsletter, but it bears repeating. Data and trends continue to support this market, and experts highlight continued rental demand across nearly all demographics.

Steve Guggenmos, Freddie Mac vice president, shared the latest data from the organization’s Apartment Investment Market Index, saying:

“The stability in national AIMI values underscores the essential strength of the multifamily market for potential investors. Property price and NOI growth continue to outperform their historical averages in the majority of metros.

…the overall strength in the labor market and underlying demographic trends are creating robust demand for new multifamily units.”

B-class properties, and not luxury apartments, are particularly attractive to today’s average renters. They are seeking affordability, space and location. As reported in an NREI article:

“…the percentage of vacant class-B and class-C apartments fell to an average of 2.7 percent in the second quarter, down from 5.2 percent in 2012, according to Marcus and Millichap. ‘In most places, resident prospects are lined up to rent any class-B stock that becomes available…’ [said Greg Willett, economist]”