In a recent article featured on NREI (National Real Estate Investor) online, experts weighed in on how 2020 might shape up for multifamily investors. We look at what they’re saying, and how it compares with what our own Ivan Barratt predicted back in October in today’s BAM Blog…
In the NREI article, the piece looks at how falling Treasury yields are allowing cap rates to tighten up, and how that combined with the cost of capital being lower is making for an attractive field to investors. While predicting that cap rates will fall, they also mention that with competition being high, many investors are taking on riskier ventures.
According to the article, they note that some investors are paying as much for higher risk assets as they’d pay for safer assets. Value-add is also a difficult proposition at this point in the cycle, according to the NREI piece. Because primary and secondary markets are seeing a narrow gap in market cap rates and value-add isn’t ideal, they note that some investors have turned to higher-risk investments like short-term rentals, etc.
Back in October, BAM founder and CEO, Ivan Barratt wrote an article about how he didn’t predict a recession on the horizon, but he did see low growth and falling cap rates. Ivan talked about how interest rates and cap rates would continue to fall, which is what the NREI article notes the market is seeing. Ivan also pointed out that prices weren’t going down anytime soon, quality assets would continue to cost, and the return on those assets would be 200-300 points above the ‘risk free rate’ or the 10-year treasury.
Unlike the NREI investors mentioned, Ivan said that BAM uses a different strategy and planned in order to avoid risk. Despite predicting interest and cap rates to fall, BAM locks in long-term, low rates in the present. Although we expect rates to drop and prices to climb, we invest as though rates and prices will rise tomorrow. Since we lock in long-term maturity, fixed-rate debt, that helps act as a risk-management tool.
The BAM Bottom Line: We’re seeing rates drop, as Ivan Barratt predicted in late 2019; however, unlike multifamily investors mentioned in the NREI piece, BAM uses a variety of investment strategies to locate good deals and mitigate risk.
Want more info on multifamily investing? Go to investments.barrattassetmanagement.com and sign up for an account. Once there, under “offerings” you’ll find a free library with articles and videos featuring Ivan and his insider knowledge and insight, as well as a ton of info on BAM, its team, track record, and offerings.