The family office real estate industry is evolving rapidly. There are new changes coming in to tackle the after-COVID challenges causing the market and economic shifts. This has given rise to new trends for coping with the challenging situation.
During such a time, planning in advance is the key to securing the investment and making good returns. It will require proper strategy and understanding to make the most of the available opportunities.
If you are unaware of the strategies or trends for multi-family and single-family offices in 2024, read ahead to get proper information. You will get to understand what new trends are coming up to navigate the changes and make the most of the situation.
2024 trends to look out for
1. Higher interest rate for family office real estate
One of the major trends that is significantly impacting family office real estate is the increased interest rates. This increase has been quite substantial and rapid. It has translated into higher mortgage rates and capital costs for investments.
As a result, the investors have now decreased, and more money is going to the lenders instead of the investors. Inflation here is another critical factor that is greatly impacting the return on investment on real estate investments.
It has increased the operating cost of properties and even the cost of building new ones. The inflammatory pressure is resulting in a major shift. CRE industry with family office investment strategies is in urgent need of adapting to the new economic realities.
2. Tax-efficient cash flow for family office
The family offices, for years, have invested in real estate for a few key reasons. For instance, some of them look for more cash flow, property that offers efficient cash flows, or gives a bond-like yield.
On the other side, there are investors who are interested in real estate just for the potential of the big returns they can make from it.
Here, one can make returns from the investment, which is generally not achievable with fixed-income or equity investments. Finally, there are also some who consider real estate as an effective hedge against inflation.
But with all the rising situations in the industry, traditional investment strategies are being tested.
The anticipated cash flow from the properties might not be materialized due to the rising capital cost. Similarly, the expected outsized return might not be possible due to economic pressures.
As things are getting worse, the effectiveness of the commercial real estate market and property values are not increasing as expected. This can all cause huge trouble as there won’t be expected returns from the investment.
3. Opportunities abound
Despite the challenges of the industry, there are still opportunities available for family office real estate investments. For those who are ready to take the risk, high-risk investments and high returns are available.
It can all be achieved with rescue capital investments. It will involve finding the equity gap in the real estate deals, which is quite a great strategy most of the family offices are currently using.
The other opportunities are available in distressed debt funds or simply debt funds. They are now being formed to take advantage of the current market distress.
This does not stop here. There are also other traditional opportunities in the real estate market in certain segments such as resort hotels, self-storage, etc.
It still presents major investment opportunities. However, they will require targeted investment and due diligence for better returns.
Management of commercial property investments in the current situation requires a proactive approach. The family office must closely monitor their portfolio and get ready to adapt to the changes and adjust as the market conditions change. This will also involve running new models that consider the current market conditions and strategies.
Direct communication within the family is also crucial. The leaders must keep all the family members informed about the market changes and how they will impact their investment.
The transparency here can be helpful for maintaining harmony within the family and ensuring all the members have a clear understanding of the investment strategies and potential rewards.
4. Multi-family properties will gain fundamentals in 2024
Multi-family housing is going through a negative run territory in the current year. But in the long term, the trends show there will be reverse action in 2024, and investing in multi-family properties will turn into positive territory. In fact, in the coming years, it seems to be quite strong. This is not just visual thinking.
It is absolutely true that multi-family construction starts will slow over the coming time because of the rising construction cost, borrowing rates, and cap rates.
A major point to highlight here is that the U.S. is under-housed by up to 4 million units, depending on any study you look at. Now, as there is no possibility of living in the metaverse, multi-family is difficult to disturb.
So, multi-family housing will be able to handle all the disruption. The next year will bring better growth. With this, the demand for multi-family properties will get back to what it was.
5. Higher Options reduce the rent in the selected markets
Rent in certain areas of the country will decrease due to the influx of new multi-family units. Thus, it will be absolutely worth tracking the market before pursuing a new project. After all, it can diminish all the potential returns.
Over the next year, there will be about 750,000 units under construction in the market. The supply wave is quite huge across the country, and it will have different applications in different markets.
The majority of this increases supply units limited to selected markets. Thus, understanding the possibilities and the drawbacks is crucial to making the most of the available opportunities.
6. Market dislocation will make development complicated
The capital market is creating challenges for multi-family development despite the positive market fundamentals of strong demand and rent.
With all the increase in capital cost, there has been pricing uncertainty in the market, which has made it extremely difficult for the developers to complete the transactions. Currently, the rate of transactions is 70% slower than in the past couple of years.
The investors are all hesitant to complete the transaction as the interest will increase, and there are also Government-sponsored entities for promoting green energy.
This is why investors are less likely to continue and complete the development of multi-family projects. Also, there will be a huge obstacle to getting into the multi-family loan.
As the investors are all looking at the downward movement of the multi-family pricing along with the uncertainty of commercial lending, it is making it extremely difficult to secure a deal.
However, some economists think the market will be resilient and pick back by 2024. So, the investors will still be able to close multi-family development in the next year.
Strategic planning for development
What you will be able to achieve in 2024 will depend entirely on how you are able to manage 2023.
Multi-family projects can still be profitable and predictable sources of income in the portfolio, but strategic planning here is the key. Finding ways to reduce the risk is crucial to handle all the challenges and maximize the available opportunities.
Research about the landscape and a specific investment area will provide insights into the risk and the anticipated return one can expect to get from the investment. When compared to what it was during the early times, investors need to be a lot more careful with their investments.
No doubt there will be challenges in 2024 and beyond as well, but they will be easy to mitigate when you are aware of the industry standards and know how to handle the challenges better.
The investments are likely to be improved by next year. So, one needs to stay focused on the goal, be prepared to mitigate all the risks and understand the opportunities correctly to make the most of the investment.
With correct considerations and understanding the investors can handle the challenging situations and build a strong portfolio. It indeed will promise better results and growth in the industry.
The multi-family real estate landscape has seen a major change, but there are still opportunities available for those who are ready to adopt the strategies and take a proactive approach to investment management.
By staying informed about market trends and maintaining an open line of communication, investors will be able to make successful investments.
However, if you are in need of any other assistance like financial support, you can consider getting help from Private Capital Investors.
They have the best experts who will maintain transparency with you and help you choose the best deal possible. They will help acquire the financing with the lowest interest rate possible. They will be there to help you get the financing as soon as possible.
Rest assured you will have the ease and understanding of the options before you decide on the best for your needs.