We sent the Thirty Capital Performance Group team to Miami to attend the 2nd Annual IMN Middle-Market Multifamily Forum Florida. During the conference, Webster Hughes spoke as a panelist for the session on Acquisitions: Creating Alpha & Building Your Portfolio While Keeping Risks at an Acceptable Level.
Our team is always excited to meet industry peers, reconnect with clients face-to-face, and gain new industry knowledge. And at this year’s conference, we were able to do that and more. We asked Webster to share his three key takeaways from the panel. Read below!
Key Takeaway #1: Expenses Are Outpacing Revenue.
Over the past three years, expenses have grown faster than revenue. As we move into an inflationary environment, it is no longer safe to assume a constant percentage concerning expense growth. As expenses outgrow revenue, effective operations and expense management will be critical for keeping up for the market and identifying opportunities to cut operational costs.
Key Takeaway #2: Cap Rate Adjustments Are Necessary as Interest Rates Rise.
An interest rate cap is a limit on how high an interest rate can rise on variable rate debt. A higher cap rate means that the market judges the property to have more risk, which means that investors need to earn a higher rate of return. For investors, an interest rate cap guarantees investment risks are at a minimum, even in a fluctuating market.
Key Takeaway #3: A Solid Debt Management Strategy is Critical In CRE Today.
Today, there is over $5 trillion in commercial real estate (CRE) debt – and the total debt is rising. As CRE firms and the industry as a whole take on more debt, minimizing risks and maximizing returns in your portfolio will require accurate, proactive debt management.
As interest rates and cap rates increase, the value of assets decrease. When asset valuations decrease, loan amounts decrease and eventually impact loans as they come to maturity. You need to understand your income, expenses, and debt. If you can understand all three of these, you’ll have a good handle on debt management and will be prepared when asset values come down.
About Thirty Capital Performance Group
Thirty Capital Performance Group is a real estate advisory company providing expertise at the intersection of capital markets, technology, data analytics, and data science to deliver results to clients. The multidisciplinary team solves the challenges faced by owners, operators, property managers, asset managers, and institutional investors in validating cashflow and economic assumptions, providing independent, unbiased insights and recommendations.