Transparency is one of Origin’s core values. Our investors should have access to comprehensive information about our funds and their performance, not just legal disclosures or sales talk. To us that means providing data and updates about properties and returns as soon as we have them. That’s also why our articles explain so much about our underwriting process, due diligence and future business plans.
Fortunately, we continue to call most real estate market moves correctly. As we thought about the outlook for private real estate investors in 2020, we also looked back at the top 10 commercial real estate trends we noted at the start of 2019 to score our predictions against the actual outcomes. We scored a nine. More importantly, we acted on our observations to benefit shareholders. As real estate sector growth trended toward multifamily housing, we refined our acquisition and business plans. Following our objective risk modeling analysis, we expanded our target markets to include Nashville, Orlando and Phoenix, cities that we believe would be less vulnerable in an economic downturn.
The Federal Reserve’s moves surprised everyone in 2019, which accounts for our less-than-perfect score. The Fed lowered rather than raised interest rates. Still, we anticipated how resets might play out in private equity real estate, and seized on debt investment opportunities. As the true prospects for economic slowdown emerged, our assumptions worked in investors’ favor. On two of the predictions related to rates, we’re scoring ourselves a half-point each, which is what brought us down to a total of nine out of 10.
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So as we chart our course for a new decade, consider this review of last year’s top 10 list as an exercise in accountability and a sign of our commitment to integrity. Here’s our scorecard of the past year’s most impactful real estate market trends. We’ll continue to track the market through portfolio updates, webinars and these educational insights.
Prediction #10: Thanks to the Fed, money will be tighter.
What we said
With treasury bonds looking better, money will be less available for other investments, including real estate. Private lenders will fill the voids.
What happened
Instead of raising short-term interest rates, the Fed cut them three times. But private equity funds stepped in to fill lending voids created by stricter standards.
Origin Prediction Score: +0.5
Prediction #9: Rent growth will moderate.
What we said
Rental demand will still come in below new supply levels, spurring a modest upward climb for vacancy rates and moderating rent growth through 2019.
What happened
Multifamily rent growth in 3Q slowed to 2.9% year over year, said CBRE.
Origin Prediction Score: +1
Prediction #8: Real estate funds will step up.
What we said
As credit tightens, real estate funds will pick up the slack and fund more commercial real estate transactions.
What happened
Real estate funds set new fundraising records this year.
Origin Prediction Score: +1
Prediction #7: Interest rates will level out.
What we said
The Fed’s quarterly rate resets most likely will end this summer, and the yield on 10-year Treasury notes will settle in their current range between 2.7 percent and 3.3 percent.
What happened
Fed cut rates in July, September and October. 10-year Treasuries ranged from 1.38%-3.22%.
Origin Prediction Score: +0.5
Prediction #6: Commercial real estate is due for a correction.
What we said
CRE prices are at record highs but private equity, institutions and family offices will buoy the market, limiting drops in property values to 5 to 10%.
What happened
Capital remains economical and properties sell at top dollar making it harder to earn high yields because salaries aren’t growing fast enough to sustain rent increases.
Origin Prediction Score: +1
Prediction #5: Multifamily housing will maintain strong demand.
What we said
Boomers are opting to rent; Millennials’ homeownership rate is still well below the 64% national average; and Gen Z is just entering the rental market.
What happened
Under-35 homeownership rose just 0.7% year over year.
Origin Prediction Score: +1
Prediction #4: Millennials will discover suburbia.
What we said
Young workers looking for value will go to suburban markets with amenities and good transportation to vibrant downtowns.
What happened
Affordability, urban jobs, and nightlife a short Uber or rail line away led to low vacancy rates in Charlotte, Denver and Nashville suburbs.
Origin Prediction Score: +1
Prediction #3: Secondary markets will shine.
What we said
Southern and inland regional areas with strong market fundamentals will outperform traditional East and West Coast gateways.
What happened
REIS top 5 apartment markets: Phoenix, Raleigh, Charlotte, Colorado Springs, Atlanta.
Origin Prediction Score: +1
Prediction #2: Data centers will draw institutional investors.
What we said
Pensions, sovereign wealth funds and institutions are adopting this asset class once dominated by real estate investment trusts and venture capital.
What happened
CBRE reports “near exponential” cloud storage and data center growth.
Origin Prediction Score: +1
Prediction #1: Qualified Opportunity Zone (QOZ) funds must move quickly.
What we said
Funds that succeed with QOZs will have the local expertise necessary to identify and control the properties with the highest potential.
What happened
Origin “lined up $105 million in 17 hours.”
Origin Prediction Score: +1
Total Origin Prediction Score: +9/10
