CAPTEX COMMERCIAL PROPERTIES

For sure, rising rates cause questions about cap rates. I think we could see some adjustment in prices. NAR has a view, while complicated to the neophyte, comes down to a moderate view. No cause for hysteria. Okay, so let’s see what happens. Already, in Austin, valuations has risen dramatically this year.

Passing along NAR’s explanation:

Commercial Cap Rates Likely to Keep Compressing in 2022 Despite Higher Interest Rates

April 26, 2022Commercial & Investment Real Estate, Financing & CreditBy: Scholastica (Gay) Cororaton

Rising interest rates are likely to put some upward pressure on cap rates in 2022. However, the rise will be modest compared to the increase in the benchmark 91-day Treasury that has already increased by 1.3 percentage points as of the end of April from one year ago (2.7% as of April 26). This is because other factors are creating upward pressure on commercial real estate prices. The apartment market is likely to benefit from the higher mortgage rates due to increased demand for rental units. Reduced consumer spending will tend to lower the demand for industrial space but increased demand for warehouse space to minimize supply disruptions (just-in-case inventory management) could boost absorption. Inflation will hit consumer spending but retail stores providing essential services like the neighborhood centers will do better than retail stores providing non-essential services like high-end shopping malls. The continuing return to the office will also tend to minimize the decline in demand due to slower business formation.

For more, see : NAR blog

Marcus & Millichap weigh in : What Tightening Fed Policy Means for CRE Investors

And then another view, from respected CCIM: CRE Can Withstand A Higher Rate Environment. Here’s Why

Jason Dannat, CRE professional in Cypress, Texas, also weighs in, sharing the above chart, concluding that in any case, rates are still historically low and likely to go higher. Thus he urges acting now.

Well, Elon Musk has been anything but boring lately. His purchase of Twitter has been capturing headlines. Yesterday the CEO of Schwertner Ranch has offered him 100 acres in Jarrell if Musk will move Twitter’s headquarters there. (BTW, not a close relation of Texas State Senator Schwertner MD.) While there is no news of any acceptance, and Jarrel is not the norm for tech companies, there is considerable expectation that another relocation to Texas may be imminent.

Musk himself, is tweeting about Space-X exploits.

The giga-factory is completed and is at least partially in use. Nearby real estate continues to be sold. Space-X continues in the Brownsville area, and has a quiet footprint near Waco.

So, what is happening to Boring? Are there still plans to bore near fault lines? There surely is a great need to reduce traffic, which surely must be unmanageable in the Austin, Texas metro area. Will the rash of towers in Texas metros call for the use of a subway system?

Boring may have some moon shot stories, but a nearer goal is hyperloops around major metros. Valuation recently hit $5.7 Billion. Full-scale testing to begin soon.

People are very worried about inflation right now. It is as high has it has been in 40 years. Most fear abiding inflation, recession, and even a possible collapse. Economists, however, on average predict inflation to have peeked or to soon peek, and then be back in the 3% range by 2024.

Commercial Property Executive Peter Muoio https://www.commercialsearch.com/news/what-inflation-recession-risk-mean-for-cre/ 

However, the Fed is in a tight spot. They have signaled the need to raise rates, but doing so does often lead to a recession. At the same time the federal administration continues to announce large spending. The Fed has cranked up the printing presses recently to add 1/3 to the existing supply! Which was already …. !

https://nypost.com/2022/03/15/the-fed-must-raise-rates-to-choke-off-the-inflation-it-created/

Fed-Induced Recession?

https://privatebank.jpmorgan.com/gl/en/insights/investing/tmt/will-central-banks-have-to-cause-a-recession-to-tame-inflation

Many people are receiving their tax appraisals and are apoplectic. Fortunately, tax rates normally adjust to create a stable revenue, so higher valuations may not mean the similar percentage increase in property  taxes.

Here is what the Teas Real Estate Research Center at Texas A&M says: https://mailchi.mp/mays/news-release-ee769ze2hc

What does all this mean for commercial real estate? We understand that multifamily often does well in times of inflation, because income and rents can rise. But is that true now? With dramatic capital influx to the South and Southwest, but wages and salaries not keeping pace? And demand struggling to keep up?! Often offices do well in recession. Will that continue when supply is uneven and materials are scarce? Will higher interest rates cause a pull back in investments, and so equal out for demand? When securities, bonds, and even the US dollar is shaky?

The analysts sound encouraging; things are not as bad as the end-of-the-world preppers say. We here at Captex don’t make many predictions. We still do like commercial real estate. And we still like Central Texas.

https://www.forbes.com/advisor/personal-finance/fed-increases-rates-first-time-since-2018/