I attended Re Convene last week in Santa Monica - a real estate conference full of commercial investors who manage billions of dollars worth of real estate.
I spoke with 100+ people over 3 days who acquire massive amounts of real estate and got a good idea of general market sentiment.
Things are very bad.
The main takeaway for me personally are listed below.
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Let's dive in:
General sentiment is not good. Fear. Struggle. Interest rates are crushing people.
Replacing debt is difficult. Banks don’t want to lend. Their balance sheets are hurting. Banks are re-trading terms (renegotiating) at the zero hour and telling investors to take it or leave it. Investors are desperately accepting whatever they can get.
A friend of mine spoke about how, on closing day, a bank added a personal guarantee to his $22 million loan and told him he could take it or leave it.
This was after all of the terms previously DID NOT include a PG and he had 7 figures of hard earnest money. Stressful stuff.
Banks who were eagerly competing for business and calling us non stop in 2021 aren't returning our calls or are simply telling us they don't have any lending capacity today.
Most institutional buyers ($50 million+) are pencils down. Laying off staff. No activity.
Investor capital is very hard to raise.
We’re competing against 5% treasuries and cashflow on assets is way lower. Why would people invest in real estate? People are unable to close deals because they can’t raise equity.
All of my friends who previously raised $50 million + of equity a year with ease are struggling to raise half of that for deals today.
Deals are not trading and transaction volume is way down.
Some boutique brokerage shops are going out of business. There is a mass exudes from the business and thousands are getting laid off.
This is a big deal because most people don't quite realize how many people make a career off of transacting real estate.
Bankers. Appraisers. Attorneys. Inspectors. Brokers. Cost seg firms. Acquisitions teams. Debt and equity brokers.
Millions of people in America feed their families by helping real estate trade hands and the volume is down 70-80% since 2021.
This leaves A LOT of people looking for a job and struggling to pay the bills.
Several people I spoke to are working hard to save properties. They have floating rate debt on development or value add deals they can’t get done.
Operational fundamentals are under pressure. Revenue is down. Rentals are down. Leasing velocity is down. Rents are dropping in many markets.
A lot of development is still finishing and will make that problem a lot worse.
I saw fear in peoples eyes. They are making incredibly difficult decisions.
It is clear to me that if rates and rents stay here another 12 months there will be carnage. 24 months + and it will bring a real estate apocalypse.
For those who can retain staff and raise capital the opportunities will be enormous and they are already appearing.
The over-levered folks and poor operators may go broke. The professionals will buy great assets at great prices and get richer.
Occupancy is down across my self storage portfolio from 85% in the 2021 peak to 66% today. New rental velocity in the storage business is moving at a snails pace and it felt like the busy season this summer never came.
Our portfolio is in good shape because we don't have very much debt and our revenue is still up year-over-year. We are in good shape moving forward.
Dealflow for us has been non-existent. We acquired $50 million worth of storage in 2021 and $38 million in 2022.
This year we have acquired $3 million across two deals with nothing else on the horizon.
What does all of this mean?
Buying real estate is harder because capital is harder to find and performance isn't as stable.
When this happens, only the best operators can get deals done and real estate prices drop.
Just think about it:
Real estate gets harder to buy. Capital gets harder to raise. People have less cash. Debt from bankers is harder to secure.
This leads to less buyers in the market. More people unable to buy.
Demand for real estate drops. Prices drop.
Good deals are coming.
We are playing offense at Bolt. We are preparing to raise as much money as we can to acquire great real estate at good prices.
If you're an accredited investor you can get notified of my deals here.
We're looking at several industrial deals and have begun cold calling properties of this type recently. We are excited about what this will bring.
I'm not smart enough to predict anything. This is all a wild guess. Rates could drop and housing could start transacting along with other asset classes. Fundamentals could get better.
We will see what happens over the next few months and years.
Onward and upward!
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