Real estate is an industry that is always in a state of flux. As such, it is imperative that entrepreneurs keep up to date with current best practices, market shifts, cutting-edge technologies and new opportunities. These factors can significantly impact a business’ success, especially as the new year begins.
To keep relevant, all of these factors — and more — need to be considered when planning goals for the new year. Yet with so many different aspects to assess, it may be difficult to choose those which are most important. Below, six members of Forbes Real Estate Council try to shed light upon the key factors they believe you need to remember when planning for the new year. Here’s what they advise you watch for:
Members discuss key factors to consider when planning for the new year.Photos courtesy of the individual members
1. Rising Interest Rates
Rising interest rates will put meaningful downward pressure on yields and will likely result in an increase in cap rates and a tempering of demand for commercial investment property. Rising short term rates will impact variable borrowing costs, so that bridge loans for value-add projects and new construction will be more expensive while rising long-term rates will lower going-in cash yields and drive cap rates higher. The real estate investment market will cool while these adjustments take place. – Paul Ruff, Triumph Capital Group
2. Listing Prices
Hold on to your money! Listing price is significantly higher than properties are trading right now. I believe sellers are going to have to be more realistic with pricing in order to transact. – Adam Mahfouda, Oxford Property Group
3. Market Performance Analytics
Keep a keen eye on the underlying analytics of market performance. Specifically, how inventory levels (properties listed for sale) are fluctuating in relation to sales. Consider rising absorption a leading indicator to monetize quickly if you’re interested in selling, and negotiate strongly if making offers to purchase. For sellers, days on market are toxic, and the longer your property lingers for sale the more buyer interest will wane and the end-result price will decline. – Laura Brady, Concierge Auctions
4. Impact of Local-Level Policies
Macro-economic factors are always going to be present and drive decisions given the long lead times that are inherent in real estate development, so interest rates and liquidity in capital markets are, and will always be, important. But, a lot of development really comes down to important decisions made at the local level. The availability and support of affordable housing will be an increasingly important social/political issue (it’s truly an economic issue as well), especially in urban cores, and local policy will likely evolve to reflect that importance in a majority of large MSAs in 2019 and onward. – Michael Gardner, Gardner Capital
Read more in Property Taxes And Local Government Are The Keys To The LA Real Estate Market
5. Solid Ground For Investment Strategies
The key thing to remember going into next year is to find solid ground for investment strategies. The upcoming year is one of uncertainty; interest rates are expected to continue to rise and rents in markets like NYC continue to decline. Investors are unsure of where and when to “jump in” when it comes to acquisitions because they are trying to figure out if they are buying at the best values possible. I believe investors need to adjust and solidify their acquisition criteria and maintain regular contact with their mortgage brokers, so that when an opportunity does arise they are able to know if the deal pencils out in today’s market. – David Kaufman, Cleeman
6. Opportunities
Our overarching goal tends to be the same year in and year out. We are looking for an edge, which we define as an opportunity to generate above market yields over a long-time horizon. In deeply institutional markets like New York, this is easier said than done, so we gravitate toward extremely complex deals that involve long-term executions. We especially like contaminated sites that have high risk, high reward value propositions. – Marcello Porcelli, LargaVista Companies