Investment sales dropped by a not-insignificant
18% in the first quarter due to a maturing cycle and
uncertainty from Washington. Still, some investors are
moving forward—carefully and strategically.
it to weather future economic cycles.
Scion Student Communities and
the Berkshire Group aren’t necessarily
exceptional companies run by contrarian
CEOs. But they also aren’t cautious ones,
either. Other companies would do well to
follow their example, for at least one compelling reason. For this quarter and likely
the next, official Washington, DC will still
be in a state of semi-paralysis and the market cycle will still be in its later—but not
“Comparatively speaking, when I look
at the strength of the US economy versus
the rest of the world, I firmly believe the
US commercial property market is much
more stable and a much better value proposition,” NAR’s Ratiu says.
A case can be made for continued investment in just about all of the asset groups,
even those that appear to be hopelessly
In fact, it could be said that the investors that sit on the sidelines waiting to see
what Congress and President Trump do
are being overly cautious. This is according to real estate economist Mark Dotzour,
the former chief economist of the Real
Estate Center at Texas A&M University in
College Station, who now advises the private sector.
As recently as last year, Dotzour believed
the cycle was just about out of gas. Now, he
says, macroeconomic and political events
have aligned to add at least two or three
more years to it. “Real estate is still a very
good investment,” he recently told attend-
ees at SIOR’s 2017 Spring World
Conference, held in New Orleans—and
that is in large part due to the inability of
Congress and the Trump Administration
to align strategies.
Yes, the very uncertainty that played a
role in the slowdown of investment sales
last quarter will also, according to
Dotzour, drive the real estate cycle to last
a few more years. Here’s why.
President Trump, as you may remember, had more than just tax reform on his
to-do list. He also wants to invest billions of
dollars into the nation’s infrastructure and
wants to build a wall between the US and
Mexico—another building project that
could cost millions, if not billions, of dollars. As of this writing, it does not appear
likely he will get anywhere near what he
wants for either project in appropriations—if anything at all.
At the same time, the US job market is
close to full employment and wages are
starting to increase. That should mean
higher inflation, were it not for the strong
US dollar keeping it at bay, Dotzour
explains. So it’s a stalemate: The inflation
that would normally result from rising
wages from a stronger economy is instead
being kept in check by a strong dollar.
The one development that could tip the
balance would be Congress funding the
wall that President Trump wants to build
between Mexico and the US and/or
funding his $1-trillion infrastructure plan.
That’s because construction labor is
already scarce. “Who would build all
those bridges?” Dotzour asks. “Who will
build the wall? We don’t have enough
workers as it is.”
The answer, he says, would be increas-
ingly higher wages to entice more workers
to enter the construction industry, and
that would lead to higher inflation. Much
higher. This, in turn, would lead Federal
Reserve Chair Janet Yellen to raise the fed-
eral funds rate at a faster clip and to a
So while commercial real estate
companies aren’t getting tax reform—at
least probably not this year—they also are
not getting rising inflation, wages that
could reach unsustainable levels and an
unexpected uptick in interest rates.
On the other hand, President Trump is
moving for ward with one of his promises—
the scaling back of regulations—and it is
here that the Republican-led Congress is
happy to step aside or assist in any way.
This is the last piece underlying the current strong conditions that Dotzour says
will be the hallmark of real estate markets
for the next few years.
Unfortunately, a strong US dollar has
its downside: it makes domestic properties more expensive for foreign investors.
US buyers were not the only ones sitting
on the sidelines in the first quarter, NAR’s
Ratiu says. During the first three months
of this year the US experienced a 19%
year-over-year decrease in foreign invest-