Imperion Insights - July 2021

We are on the move!
Yes, Inflation.
Out of all the noise and thousands of moving parts and pieces that surround our industry, one that has been most striking to me has been the return of inflation.  Most experts have been predicting it for years - and frankly been wrong about it for all this time.  It has taken a "Black Swan" event; namely COVID19 to bring the "i-word" back to the headlines, but regardless the fact is we have real - and surreal - inflation hitting us across the face, right and left.  I hope you, unlike me, is NOT in the market for a new refrigerator, because you will not like what you will find out at the stores.  Provided you actually find one to buy.

Now, as real estate investors, inflation is not all bad.  Yes, it increases our operating expenses and we have to account for higher prices on our rehab budgets but the fact of the matter is that real estate has some features that are inflation resistant.  The first that comes to mind is fixed rate debt which basically means the real value of our monthly mortgage payments is worth less and less in an inflationary scenario.  Also, inflation - all else being equal - will put upward pressure on rents, which of course is a good thing if you are an owner of rental real estate.

If that wasn't enough, we have - this is not new, but it is getting worse - a national housing shortage crisis in this country.  The new supply of the housing stock (single-family and apartments) is just not enough to keep up with demand.  Besides, and at least partially as a result of this shortage, we have an affordability problem as people cannot afford to buy starter homes, or for that matter pay the rent on the new supply of "A-Class" apartments which commend steep asking rents to cover the ever-increasing cost of development.

Marcus and Millichap, one of the biggest firms in our space, did a short video on this topic, which I will provide here for your reference.

My bottom line on all of this is that I am happy to be an owner of B-Class apartments, where there is solid demand, and no new supply.  Inflation or not.

New Acquisition
We are thrilled to announce Vantage Point Apartments as the most recent addition to our portfolio. Vantage Point delivers on the most important characteristics we look for; location and asset quality. We are excited to take an already performing asset to the next level. We are thankful for the investor partners that made this acquisition possible.
Successful Exit
We are beyond excited to announce that we have gone full cycle on another successful deal, Donovan Village Apartments, delivering approximately 240% in total investor returns.  None of this would ever be possible without the incredible investors, their vision, commitment, and patience.

Real Estate is a team Sport!

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