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Levine Capital Newsletter June 2021

Levine Capital Newsletter June 2021

Real Estate Update June 2021

Find out what’s happening in the market now, what’s driving trends and investor choices, as well as the latest updates from Levine Capital…

The State Of The Markets

Key factors at play right now…

Capital Is Plentiful

Investors have been stockpiling cash over the past year. This includes everyone from individual investors up to JP Morgan, which Jamie Dimon says has been bulking up on cash while seeking better yielding investments. 

According to The Real Deal, there was around $356B in cash in private funds ready to be put into real estate as of April 2021.

This liquid capital is likely to continue to keep target sectors healthy and support their ongoing growth over the next couple of years.

The Best Tax Breaks Remain In Real Estate

It’s not what you make on the topline that really matters. It is what you get to keep.

It’s no secret that all of our money is under a barrage of attacks from new taxes. That is only likely to compound over the next three years.

Real estate continues to offer all of the best legal tax shelters and breaks, including self-directed retirement account investing, 1031 exchanges, and 100% tax-free returns available through Qualified Small Business Stock investments under IRC sections 1202 and 1045.

Inflation & Interest Rates

While many analysts have proclaimed that we are already in a period of hyperinflation, Treasury Secretary Janet Yellen spoke out this month, stating she thinks inflation has been too low, and that raising interest rates would be helpful. 

Rates have been at historic lows, and have plenty of room to go up.

The danger is creating stagflation, in which consumers abandon and stall the economy as inflation skyrockets. It means soaring costs and low overall economic growth. 

This makes it even more essential for investors to lock in inflation hedging investments now.

The State Of The Real Estate Market

Everyone knows that the real estate market has been on fire over the past year. Here are some of the most influential trends impacting the space now, and the outlook ahead.

PropTech Fueling Performance

While many have expected real estate cap rates to be compressed, and losses to mount over the past couple of years, operators have been able to push back and even increase profitability through the adoption of new technologies. 

The property technology (PropTech) sector has been exploding, with billions of dollars in investment. While not all of these startups will last, and many others will be rolled up and consolidated, the best products are helping to create even more efficiency, enhance asset and fund performance, make it easier to invest, lower risk, and provide more transparency.

Innovation is expected to accelerate in this space including in:

  • Property management
  • Real estate data
  • Financing 
  • Investor relations
  • Construction technology
  • Smart home technology

The SPAC Factor

SPACs have been big news in 2021. The volume of deals and dollars being transacted by these Special Purpose Acquisition Companies (SPACs) has caught the attention of the media and analysts. 

Hundreds of these deals are being done. Most for billions of dollars. Since last year, over 10 multi-billion dollar real estate SPACs have been completed. 

These can be good deals for sponsors and the founders of acquired startups that may have not otherwise been able to go public.

The concern is that companies like WeWork have been able to use it as an avenue to raise billions, despite continuing to lose billions of dollars a year and having lost other investors tens of billions of dollars. In fact, Wikipedia points out that post-acquisition stock prices almost always prove to be losers. 

Rising Rents

According to Seeking Alpha and data from Zillow, U.S. rents have been rising rapidly. 

Some landlords are reporting they have raised rents by 14% over the past year, though the annual median rent increase nationally sits just over 4%.

This ranges from low-cost markets which have seen rents rise an average of almost 12%, to the losers that have fallen out of favor, like NYC and San Fran, with rents down almost 9%. This is moderated by more stable markets with continued sustainably paced rent growth, which may offer the best long-term growth. 

A new period of rising interest rates is also likely to make renting more appealing and possible than home buying, further propping up rental rate growth. 

What’s Most Important In Investing Now

The multifamily and single-family rental markets in the U.S. have each become worth around $3.5T. $77B was invested in SFR rentals in the last six months alone according to The Real Deal. The popularity of single-family and townhouse-style rentals is certainly contributing to this. 

Far more capital is inbound as pension funds, family offices and other institutional investors target the rental property market with billions of dollars. 

However, while it may currently appear that it is impossible to lose in real estate, it is important to recognize that these sums of capital alone don’t necessarily equate to sustainability and future performance. 

The one make-or-break factors in capital preservation and net returns will continue to be industry experience and the ability to execute well. 

Be sure you are placing your investment dollars with managers who have proven themselves in all phases of the market.

Levine Capital Updates

As a company, Levine Capital continues to be extremely bullish on single-family homes and multifamily investments. 

We’ve had great success with Fund II and Fund III. Keep an eye out for our upcoming case studies on the performance of these funds. 

Check out this new property tour with our principals and Daniel of TCS Anika Homes, and see what we’ve been investing in for yourself here.

Also, be sure to check out the latest news and insights on the market in our news section.

Including:

  1. Active versus passive investing
  2. Getting started in private lending
  3. Why the smart money loves income properties so much

We are also expecting to announce a new debt platform and credit strategy in conjunction with a notable international institutional investor. Be sure you are subscribed to our social feeds and email newsletter to be one of the first to find out how we are doing it and to get access if you qualify. Plus, to get access to our upcoming live Q&A with one of our deal sponsors.