Investor | Family Office CIO | Portfolio Strategist | Board Advisor | VC | Finance Professor
I have always fantasized about buying into a midtown Manhattan office building portfolio since New York City is the nerve center of global finance, banking, digital media, fashion, art and the coolest, most creative yuppies, the best and brightest of mother earth. Now my fantasy has come true. I can now buy New York office buildings at $430 per square foot, lower than the price I could expect to pay in a Business Bay tower. I also get a 9.8% yield while I wait for the rate rises to end and the development pipeline opposite Penn Station to throw off paydirt. Value investing in real estate can be a money gusher if the location assets and price are aligned. I cannot reveal the name of the beauty but I assure it exists and is all too real.
At this moment in time, I would only buy real estate trusts that generate cash flow with minimal financial leverage since the cost of borrowing will rise sharply as the Powell Fed inflicts pain on the bold and the beautiful, especially if they are leveraged up the wazoo. Fed tight money and the onset of global recession are the twin macro bogeymen for real estate and 2022 has been a horror as the 30 year fixed rate mortgage yield has doubled to 7% and wiped out housing affordability metrics in America.
The housing bubble is a three-Sigma monster that my real estate guru in New York, Yankee Yogi (my Yogester does only Downtown/Palm in Dubai and yes he reads my palm to divine micro trends in a quest for inspiration from Jhulelal!) predicts it will trigger a major property slump worldwide. In the past decade, my focus was on data center and industrial property REITs as Equinix and Prologis were the ideal proxies for the exponential growth of cloud computing and e-commerce.
Since real estate contributes 40% of all global greenhouse gas emissions, I have re-christened myself Green Matti. Tolstoy said all happy families are alike and all unhappy families are different in their own way. I am sure Tolstoy was also talking about unhappy/bear property market cycles in his magnum opus Anna Karenina.
Now that Putin has threatened nuclear war, a RE manager who specializes in critical storage of legal/regulatory compliance/electronic files in the caves of the Swiss Alps, the Colorado Rockies and Tora Bora (even the Taliban want to attract FDI to Afghan real estate LOL) can offer stellar profits in the post Ukraine Zeitgeist.
As growth tanks worldwide in 2023 and the Fed funds rate rises to 5.5%, most real estate assets around the world will simply crumble in value and this property bear market will last a lot longer than the crash of 2008-09. I am alarmed by the number of my friends wanting to develop luxury villa projects at the insane peak bubble mania moment of the cycle even though they have all lived through the terror of the 50 to 60% fall in the 2014-21 bear market. They do not grasp that Papa Bear now haunts the world and goldilocks developers and offplan punters will be skinned alive.
Also published on Medium.