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Real Estate Market Update – Levine Capital

With only a few weeks remaining for 2020, we fervently hope you’re settling into a safe,  peaceful holiday season.

November holds the record of pushing the Dow Jones over 30,000 for the first time. Money managers seem to have a positive outlook that the distribution of multiple vaccines will help the economy recover over the next year. While recent data show that economic growth is slowing down, markets are betting the recovery will gain traction, particularly with Covid-19 vaccines on the horizon. Investors are looking to mid-to-late 2021 when conditions should get normalized, and long-term disruption to the economy can likely clear out. Investors are hopeful that the stimulus will likely continue with the possibility of even more to come. Meanwhile, the Federal Reserve has indicated it won’t be increasing interest rates from near zero any time soon.


Today’s market looks remarkably different from the last recession. Residential property values remain strong in most parts of the nation, and this current crisis has been caused by the pandemic, not reckless mortgage lending practice. Additionally, the size of private RMBS issued in recent years is far smaller than in 2006 and 2007, when it exceeded $1 trillion. Many lessons learned from the last recession have helped pave the way for mortgages to be securitized with more rigorous underwriting. The mix of scarce housing inventory, record-low interest rates, and strong demand has driven up home prices to the point of pushing more people into the rental market, which could be an opportunity for rental home investors. Simultaneously, more than half of those surveyed plan to move to a more affordable house than their current one in order to reduce their housing costs.

American homeowners with mortgages have built up nearly $10 trillion worth of equity in their homes over the past decade. Tough times have left millions of homeowners delinquent on their mortgage payments and at risk of foreclosure. However,  financial woes caused by the pandemic are more likely to bring about many forced sales than foreclosures, thanks to the equity cushion accumulated. A lot of equity-rich yet cash-poor owners would rather walk away with cash on hand than get their houses foreclosed on. Recognizing this situation, Invitations Homes, the largest landlord of single-family rentals, instigated sale-leaseback arrangements, which allow homeowners to cash out of their homes but continue to stay.

The residential rental market has been sailing along despite the high unemployment rate and early threats of rent strikes. Residential rentals remain strong due to stable rent collection and a renewed trend for people to use their residences more than ever. However, the new rent regulations were introduced last year in New York City, which came as a considerable chilling effect on the multifamily market. Some of those whose equity was eroded by the new regulations may need to sell their properties at more reasonable cap rates.

Both foreign and domestic investors are coming back to the U.S. real estate marketForeign investors are drawn to the U.S. by the resilient economy during the pandemic and attractive rates of return. This time, emerged new trends of flocking to growth markets such as Miami, Dallas, and Boston rather than the traditional gateway cities like New York and San Francisco. Foreign investors are also seeking other pandemic-resistant asset classes beyond multifamily and industrial. Consequently, data centers, life sciences, and medical offices have recently surged in popularity as well.


High net worth individuals (HNWIs) have increased their capital allocation to real estate over the past decade. The feeder fund structure, similar to the Aggregation Fund, is used to aggregate a pool of capital that invests in the master fund alongside institutional investors. The feeder fund provides a new opportunity to get into various real estate investments.

Feeder funds have been around in the private equity world for many years and have become popular amongst HNWIs. Did you know that HNWIs hold an estimated $74 trillion in wealth and have increased their focus on real estate to diversify their investment portfolios?

My father has been continuously investing with one of our sponsors for almost a decade. Here is a clip of an interview in which he shares what he learned in his investment journey.

“You can negotiate better terms for yourself when you are writing a large check… “I’m entitled to special incentives when writing large checks”   Dr. Stewart A Levine    

Levine Capital’s Aggregation Fund has negotiated more favorable terms with tax advantages compared to direct investment.

My father recently invested another $100,000 using a self-directed IRA, which is expected to earn a target 20% of IRR and a 2.0X Equity Multiple over a 5-year hold, with an early redemption option in 30 months.

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