Recently, I was lucky enough to hear Spencer Levy, Chair of Americas (for ) CBRE speak. I was both interested and pleased to see that we shared some similar points of view. Basically, I’m betting (along with Spencer) that we’re not going to enter a technical recession; of course, the technical definition of a recession being two consecutive quarters of negative GDP.

Unfortunately, as the world does continue to slow down (the U.S. included) we’ll see a period of low, sub – 2% or even sub – 1% growth. What this means is that interest rates and cap rates are going to continue to fall. For a good reference point; in Europe, where you have zero and negative interest rates, cap rates are 3.5% on top tier commercial real estate. Respectively here at home, the cap rates are 4.5%. Further, it’s easy to make the argument that the U.S. is in much better shape than Europe at the moment.) Cap rates on commercial real estate will go lower over the long term.

What’s the bottom line commercial real estate? Prices aren’t going down anytime soon, quality assets will still fetch higher prices, and the returns on those assets will remain 200 to 300 basis points above the ‘risk free rate’ or the 10-year treasury: currently 1.75%

BAM Strategy: Although we’re predicting interest rates and cap rates to go down, at BAM we still lock in long-term, low rates today. So, although we anticipate rates to drop and prices to continue to go up, BAM invests as if we expect rates and prices to go up tomorrow. We continue to lock in long-term maturity, fixed rate debt as a risk management tool.

The good news is, I don’t predict a recession for at least a couple more years, but the bad news is the slow/low growth.  It will be increasingly important to acquire assets in sub-markets that will continue to see rent growth!  

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.

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There are a few main reasons we think our fund is better for investors. In fact, in some ways it’s really not even a fund. Instead we often characterize the fund as a multi-asset private placement, because it’s the same as you and me, as investors, going out and buying apartments – instead we’re just buying multiple locations to spread the risk. You’ll get a K1, you own the real estate, with all the advantages that come with it. Unlike many funds out there, you don’t own a piece of paper – you own actual real estate.

Reasons the BAM Fund is Better

1. Our fund is NOT a REIT: The first reason that our fund is better than others is that we’re not a REIT (real-estate investment trust). As an investor, you’re a partner. It’s analogous to you buying an apartment building with me, as partners and agreeing to some economics for both of us. In this case, instead of buying one asset, we’re buying multiple assets. This gives us the diversification of a fund, and an overall higher probability of a return, by “spreading our bets.”
2. Raised capital doesn’t burn a hole in our pocket: We’re not raising $50 million and then running around, desperately searching for deals. Instead, we’re raising capital in tranches, as we identify assets. We have two years, and we can close the fund at $20 million, $30 million, or our max of $50 million – but we have to identify the assets first. We’re doing it this way to prevent misalignment with investors by being backed into having to find deals to get returns.

3. Our fund pays an annualized coupon of 7% monthly: Within two-three months of deploying the investors’ capital, you’ll receive monthly cash flow. In this market, we’re still successfully finding deals that we’re highly confident will return overall 14-18% in annualized returns as we exit the deals, hopefully between years 5-7.

These top three reasons answer things I tend to hear often regarding how the fund works, and are the reasons why we believe our hybrid fund is superior!

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 great info on BAM, our team, and our offerings.

The post Ivan Barratt: 3 Reasons Our Fund is Better (It’s Not Really a Fund…) appeared first on Barratt Asset Management.