The race to the bottom

I’ve been investing in commercial real estate for a few years – office, retail, logistics and the star of the last five years Multifamily. Returns are great on most investments and prices have risen sharply. This is all old news. Most investments originated in the last 4 years have treated investors very kindly.

From all of my investments in commercial real estate I have to say that for me, Multifamily trumps them all. I like the fact that the investment is a defensive one (everybody needs a place to live); the fact that leases are for 12 months allows me to uplift my rents when the economy improves – but for the most, I love the cash flow. Strong, stable and predictable cash flow.

But things have changed. Cap rate compression is pushing me out of my comfort zone. Some may think I am a “yield hungry” investor, on a personal note, I do prefer nice cash on cash return rather than a fat kicker at the end. But when cap rates for Multifamily are sub 6%, I just can seem to justify investing in that particle asset class.

It seems that every where I look the “cap compression” effect is working overtime and what happened in the bonds market is happening here too. Investors are in a buying frenzy and no matter what you do, there will always be someone willing to pay more and get less. This can work for institutional investors with low capital costs great tax breaks and target returns of 5%. But that’s not me.

So I started to look around, looking for my beloved “resi” cash flow investments. Most of you know where I’m going with this…. Single Family Rentals seems to be the solution. Now if you could just “Give me a fixed point and I will move the world.”