CPI vs Actual Inflation, how are you protecting 3-10 years leases

[Chris Blackburn]

    I have entered into a number of leases, fighting the RE Agents on a method to protect me in the case of accelerated inflation.   Getting a 3% increase is hard and CPI has been manipulated to the point that it does not represent real inflation.  Anyone have suggestions on how to protect my assets from inflation.  I believe real inflation is closer to 10%-20% (call me crazy)  On a 10-year term for our class A tenants- this means that we are receiving less than 50% purchasing power even with a 3% increase.   The best way is to put in a "fair market value" renewal clause even if they want multiple renewals.  At least you can present new data as opposed to being locked in.  Anyone using anything different?  I think we are seeing inflation suggest by Gov, at 4.2%  (if we use the same method they used for CPI in 2009? you get a much higher number.  (www.shadowstats.com).

[Chris Blackburn]

@Ronald Rohde   Thank you Ronald, I found that index to be a much better indicator of what we are seeing. http://www.chapwoodindex.org If no one can afford the new rates at accelerated building costs, it will put upward pressure on existing inventory to help increase price. Real Estate is not inflation-proof but it does eventually rise to meet the new numbers. Having a fixed debt for a significant term really solves this. Most commercial RE is 5/25 or 10/25 for loan rates. I am moving toward the new build, 36-100 units, 3 story walk up- (easy to build), Steel stud construction (panelized) on a flat piece of ground. A bridge to HUD finance can give me permanent 35-year financing currently at 3.5%. This is inflation-proof! Not sure how much of a window we have but will be trying to do about 1000-800 doors over the next 5 years. The amazing part is HUD allows for 85% LTV so potentially all my (or if we take investors) money could come back as a loan (Rates have to stay low and it has to appraise) in 36 months or less. The only deal I see better than this is the same project but in a qualified opportunity zone. Roll those cap gains/qualified into a new build project QOZF, bridge to HUD, 85% LTV cash out as a loan, and build another one. (Taxes WILL be due 4/2027 at an unknown rate) ALWAYS build simple to the middle housing need- NO fancy luxury- In Oregon we have 10 years of apartment building before we see an issue. Our residential housing prices have doubled in 5 years and an entry 1200 sq ft dinger is $300,000 plus with 20 offers coming in the first week. This could all go away if material prices continue to climb so we are cannot charge enough to cover mortgage costs. I guess we would jump into the affordable housing side and make our income from the developer fee and hand the project to a non-profit