Market Commentary – July 2019
Investment Commentary: Real Estate
As a resident of Southern California, I and many of my fellow Californians have generally had a positive experience in Real Estate. The draw down in prices when General Dynamics pulled out of San Diego in the mid-1990s hit the market as did the drawdown from 2007 through 2010 caused by the housing bubble and “Great Recession” across the country. If you bought real estate assets just prior to these events, you probably didn’t enjoy that experience – however more importantly if you held onto those investments (So long as you could!) they are probably worth more today than originally purchased. As my father would always tell me, “When it comes to real estate, the most important thing to remember is to make sure you can hold onto it”.
With plummeting interest rates of late in the US and negative interest rates in various countries around the world (Japan, Germany, Switzerland, etc.) investors looking for lower volatility assets that will generate cash flow are becoming difficult to find. More over from my seat, the Central Bank focus on providing tons of liquidity to offset current deflationary pressures caused by changes in demographics, disruptive technologies, etc. concern me that we are sewing the seeds for a mass devaluation of currencies as time rolls forward. Rather than accepting the dogma that a “60/40 Portfolio” is still the way to go for most households (60% in equities / 40% in bonds) – here at Koa we are starting to shift our thinking to include other assets to that mix – namely real estate.
Most of our investors have had some experience with real estate, at the very least going through the process of buying/selling their own personal residences. Some have owned investment properties (Residential or Commercial) or passive investments (IE. Partnerships) with the hopes of generating income and capital appreciation over the long term. The problem with owning real estate via these two options can be 1) Difficulty of management (Either doing it yourself or supervising a Property Management Company) and 2) Illiquidity – or inability to access your capital, often requiring a sale or refinancing of the property to recoup your principal investment.
At Koa we embrace challenges and pride ourselves on finding solutions. Over the last number of months, we have teamed up with two top Real Estate companies Starwood and Blackstone to present our clients with solutions in the Real Estate space that solve many of the problems traditionally found when investing in real estate. Both Non-Traded REITs have a keen focus on an area of the Real Estate market we especially like – multi-family apartments. Just this Monday, July 8thDiana Olick of CNBC posted an article “Apartment rental demand soars as more millennials believe it’s cheaper than owning a home”. As any investor knows real estate can differ by location — state to state, city to city – heck even block to block! It can also differ by product type – Apartments, Hotels, Office, etc. One thing is abundantly clear – the apartment space is benefitting in demand from the baby-boomers who are selling their homes and deciding to downsize to apartments, allowing them to access the equity in their homes to support their living expenses. In addition, we also have millennials who have acquired large amounts of education-related debt that are delaying their ability to purchase their first home causing them to remain renters longer than previous generations. This elevated demand coming from the two largest generational groups in US history combined with the lack of building in the apartment space creating new supply post the Financial Crisis has been a boon to rents and apartment values. Whether we have a robust economy or one that limps along – one thing is certain, people need a place to live!
Koa Wealth Management
11260 El Camino Real, Unit 220, San Diego, CA 92130
This material should not be considered a recommendation to buy or sell securities or a guarantee of future results. Koa Wealth Management, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. More information about Koa Wealth Management, LLC can be found in our Form ADV Part 2, which is available upon request or by visiting our website at www.koawealth.com/disclosure. Past performance is not a guarantee of future results. All investment strategies have the potential for profit or loss; changes in investment strategies, contributions, or withdrawals may materially alter the performance and results of a portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.
CNBC Market Data