When I bought my first duplex in 2003, I believed that real estate investing would reward a thoughtful, steady mindset. That hasn"t changed, even after the market forces we"ve all lived through over the past decade. Today, my companies manage over 13,000 apartment units in 10 states, and it"s taken a lot of patience (and some trial and error) to deliver consistent returns. At January"s National Multifamily Housing Conference in Orlando, I had the chance to talk with hundreds of industry experts at all levels about outlook for 2018. My three takeaways:
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The multifamily workforce sector is still a worthy investment. 2017 was a good year for multifamily housing, and the keyword on the ground for 2018 is "stable." There"s still a lot of potential in the mid- and lower ends of the market, and an opportunity for investors to fill the demand that federal housing can"t. I"m also a believer that repositioning in this sector, when executed properly, can yield outsize returns. When it comes to multifamily, we"ve been consistently rewarded in our "fight for quality" rather than a "flight to quality." We"d rather put in the hard work and assemble the expertise needed to effectively renovate and reposition properties than go straight into a bidding war for the most attractive luxury offerings on the market.
Where capital exceeds supply, look at the sub-markets for better long-term value. Retail may still be a drag, but investors spoke with their feet when it came to the performance of well-placed industrials and housing last year, where we saw strong investment activity. From every indication we have, e-commerce will continue to drive demand for warehouse and logistics space. If you want to talk about the Amazon effect, look no further than the ongoing race for warehouse space that"s closer to metropolitan areas. Now that customers can get what they order faster than ever, they"re never going to go back to accepting 5-7 day shipping. We"re believers that the bid to close the "last mile" to the customer will continue to take industrials outside of their traditional footprints and closer to metropolitan and residential centers. On the overall housing front, there"s some softening in the higher end of Class A (high-end) rentals, so again, don"t bet on quality alone but look for under served areas with high concentrations of middle-class workers. As with industrials, we keep a close eye on where new construction is going in the established markets, but a closer one on the suburban markets where we think there"s even greater upside.
Rates are low, but they won"t stay there. We have a new Fed chair, tax reform is settling in and we"re now underway with housing finance reform. While money will probably stay cheap for the immediate future, it"s an open question where the dust settles after the coming rate hikes and the potential end of Fannie Mae and Freddie Mac as we know them. Even if mortgage finance reform fails to clear Congress, we are planning for an uncertain second half of 2018 on this front.
My team and I keep all of this front and center when we make decisions at A-Rod Corp and its subsidiaries. While we have fully integrated our capabilities from finding and underwriting assets to management and exit, it all boils down to a simple formula: buy, fix, and sell. Stacking up capital for some kind of correction is critical to our 2018 game plan. As we look forward, we are being more selective and cautious before we buy than ever (we"ve actually sold over 2,000 units in the past 18 months). We"re no strangers to drama in the ninth inning, but we bank on preparation and a steady mindset to get us through.
Commentary by Alex Rodriguez, the former professional baseball shortstop and third baseman. He played 22 seasons in Major League Baseball for the Seattle Mariners, Texas Rangers, and New York Yankees. He is currently CEO of A-Rod Corp, a fully-integrated real estate investment firm he founded during his professional baseball career. Follow him on Twitter @arod.
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