Although we are inching towards the later stages of the cycle, the multifamily investment market has remained healthy. Providing evidence of this is the fact that national vacancy rates have only slowly inched up in the face of high levels of new supply.1 But doing well in this sector involves more than buying an apartment building and sitting back as a passive investor. Before you start your property hunt, however, you need to ask whether that Class A “luxury” investment, or Class B “workforce” property fits your risk profile and your investment goals.
When you sit down to figure out your investment strategy, the issues you might examine are financial goals, what type of return you might want, and what assets are available for acquisition, at a cost that makes some sort of sense. Also important is how much risk you’re willing to accept for a given return to meet your financial goals. It’s a good idea to understand your level of risk tolerance, to ensure that you make the investment decisions that are right for you.
It should come to no surprise that Delaware Statutory Trusts (DSTs) carry many of the same risks as a direct property investment. After all, the underlying asset driving the investment’s performance is some type of real estate asset. From illiquidity to macroeconomic risks, such as rising interest rates, DSTs are exposed to a variety of similar factors that may spell trouble for any real estate investment.
In an environment of increasing property values and interest rates, realizing a return on real estate is becoming increasingly difficult for investors, whether it be an investment into direct property or a fractional ownership structure, such as a Delaware Statutory Trust. While this may be a concern for most, as 89% of investors put their money into real estate1, many are ignoring the crucial aspects of a real estate investment that go beyond the macroeconomic pressures.
*Update February 2019: Realized has established its Secondary Market and has completed its first Secondary Market transaction.
You probably see them as you travel the interstates, highways and byways across the United States. Their low-level buildings boast many roll-up doors, painted in various bright shades of green, yellow, blue or orange. The on-site signs offer all kinds of inducements encouraging you to store your worldly goods there.
There is no surprise that the DST market is heating up. As more and more quality deals become available, investors are looking for ways to defer their capital gains, while benefiting from the passive nature of DSTs. As noted by FactRight, equity sales in 2017 of DST offerings were nearly $2 billion, a 10-year high1.
As we mentioned in Part 1 of this series, e-commerce is changing the way we do business. From the way we communicate to the way we transfer products and services, these changes have a dramatic impact on the real estate industry, especially affecting the productivity and value of retail property types. Although one may believe that this particular sector of real estate is stable, looking to increasing values since the Great Recession, a recent shift in returns has shown evidence of a distressed market, that has been significantly impacted by how the sector has been conducting business, and how consumers are reacting.