2020 Outlook - U.S. / Texas / Apartments - Net Positive

Overall the U.S. market for 2020 continues to look favorable for investing in commercial real estate assets although we have some additional considerations to think about. We've been in a long upward cycle so many wonder whether that can continue.  An upcoming presidential election, BREXIT, existing trade war and some rent controls in the coastal markets are also events to keep an eye on.  However, in our opinion and those of many experts that we take insights from, we are still net positive on several sectors of the commercial real estate market, Texas in particular and apartments as a major market focus.

On the nationwide market outlook, the macro environment is net positive.  Supporting further interest and investment in commercial real estate are:

1. - Historically low interest rates (great for borrowing and investors looking for higher yield)
2. - Low unemployment and robust jobs market 
3. - Stability / safety of the U.S. economy (foreign investment)
4. - Increasing household formations 
5. - High levels of capital and liquidity looking for good yields.
6. - Lack of affordable housing stock remains a long-term issue

The Texas market where we have a lot of our apartment deals continues to look robust.

• - Texas employers created more jobs for 115th straight month of gains thru Nov.
• - Texas unemployment held steady at a historic low rate of 3.4% for past 6 months.
• - Austin is ranked #1 of 80 cities as best CRE market in 2020.
• - Dallas and Houston trail only San Francisco for near-term economic success in the analysis of how America’s 10 largest cities will fare through a slowdown.

The asset classes that we favor, multifamily apartments (class B value add), self-storage and mobile home parks still are solid core ideas for your real estate investment allocation. They are proven performers in up markets and hold their own in down markets. Click here for previous blog on why they are solid "all weather" performers.

Apartments (class B value add) and Mobile home parks offer affordable housing options and will continue to be in demand. Household formation continues, younger millennials will have affordability issues for new homes as prices have risen and lifestyle choices of being flexible, mobile to move around seeking job opportunities keep these assets attractive for investors. Boomers, retirees downsizing also favor these niches.

The supply of housing continues to be constrained as well and the new apartments being built are offered at rents often $300 to $500 higher than our post-renovated (1980s to 2005) renovated class B apartments, hence a solid value proposition insulates us somewhat from downturns.

Self-storage has had a good track record of holding up in downturns. There is softness in Tier 1 cities with oversupply in some markets and that is something to keep an eye on. It looks like that will be around for a few more years as new construction continues to hit the market. Tier 2 and 3 cities still offer good opportunities.

In sum, we feel the markets are generally healthy.  Take a look as some of these niches as we still feel they are favorably positioned to perform well.  We favor investing through syndication operators that are focused on one or two markets and one niche.