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Traditional Values, Modern Thinking H2

How rising interest rates could benefit California investors

According to reports, in December 2016, the Federal Open Market Committee voted to raise interest rates 25 basis points and plans to raise rates three more times during 2017. While the market had been expecting the increase, many commercial real estate investors have concerns that the change may bring about a negative impact on the commercial real estate market. However, these fears may be unfounded.

While interest rates should not be ignored, the real concern people should have is over the condition of the economy because interest rates are artificial. In fact, whenever interest rates are normalized, it is typically because the Fed believes the US economic recovery is strong enough to handle the hike without the false support of low rates. This factor should encourage property owners and commercial real estate investors as a thriving economy is what investors rely on despite rising rates. A strong economy spurs jobs, produces higher wages and brings in more cash to investors via higher sales prices and rents. It is also interesting to note that, prior to the rate hike in December, the last time the Fed raised the rate was back in 2006.

Southeast real estate boom attracts investors across the US

California investors may be interested to know that the Southeast region of the U.S. is experiencing an unprecedented economic boom. This has led to a record number of real estate closings for developers in the region, according to industry insiders.

The Southeast, which comprises the area between the Appalachian Mountains and the Gulf of Mexico, now makes up the world's sixth largest economy, according to real estate market experts. The boom is led by the large metropolises of Atlanta and Miami, but the entire region, including Charlotte, N.C., Tampa, Fla., and Nashville, Tenn., is experiencing rapid growth.

2017 stress test will focus more heavily on CRE

Commercial real estate developers in California may have read about what banking regulators are saying about the real estate market. After low interest rates caused a spike in CRE loans, banking regulators have become worried that banks are issuing too many of them. The Office of the Comptroller of the Currency has flagged CRE loans as risky, and the U.S. Federal Reserve is putting a greater focus on CRE in this year's stress test.

The Fed introduced its annual stress test along with other financial regulations after the 2008 financial crisis. The stress test requires banks to prove that they could survive a hypothetical scenario in which the economy takes a downturn. If banks cannot pass the stress test, the Fed will require the banks to boost their capital reserves before investors can be paid or new investment plans can move forward.

Factors that may impact CRE development in 2017

California commercial real estate developers might wonder what 2017 may bring to the market. There are several factors that experts believe may impact the availability of financing and the market itself during this year.

Interest rates are broadly expected to increase soon. This increase is expected to only be about a quarter of a percent, however, so the increase should not have a dramatic effect on commercial real estate. With thousands of loans scheduled to mature during 2017, borrowers might be led to refinance their loans so that they can lock in interest rates while they are low.

Due diligence on value may aid real estate investors

California investors who have their eyes turned toward real estate may follow several rules to help ensure a wise investment. The goal for real estate investors is to purchase properties at the prices that are most likely to appreciate and build wealth.

Price does not equal value. If an investor pays too much for a property, then he or she will not be getting a good value out of the deal. Investors may want to start by staying within their price ranges and focusing on specific property types and locations. Tracking trends in jobs and population changes is also important because the trends may affect the growth potential of properties.

Chinese buyers shopping for U.S. commercial real estate

Real estate in San Francisco and Los Angeles has attracted foreign investment into California. Chinese buyers have been especially active, spending in excess of $300 billion throughout the country.

The president of one commercial real estate firm explained that investors see significant opportunities in the U.S. market. He said that a slowing economy in China has motivated rising capital movement into the United States. An appreciating U.S. dollar fuels the investments as well because the potential yield from commercial properties appears to be competitive.

Younger investors should not miss out on real estate

California is home to some of the nation's most active and profitable real property markets, but many experts say that large numbers of the millennial generation are missing out on some excellent investment opportunities because they mistakenly believe that large capital reserves are needed. The information age has provided investors with tools like crowdfunding that allow them to add real estate to their portfolios even if they only have a few hundred dollars to spare, and the passage of the JOBS Act has opened up this opportunity.

Stock markets are generally active when economic indicators are positive, but share prices can plummet rapidly and without warning when investors lose confidence. Real estate offers younger investors a relatively secure hedge against this type of volatility, and this could provide them with confidence they need to trade stocks with purpose. Research indicates that cash currently makes up about 70 percent of millennials' portfolios.

Trump's impact on the economy and real estate markets

Many people in California would agree that the 2016 presidential election was unlike any other. While there is a lot of speculation about how a Trump presidency will affect the economy, the impact on the markets is still yet to be seen. Many of the policies that Trump talked about during the campaign could have profound effects on markets, but it's unclear whether they will be positive or negative.

Commercial real estate investors may want to pay close attention to key economic indicators from now until around the first 100 days after Trump takes office. Since there is so much uncertainty, many investors are waiting to see what happens before going forward with sales or purchases. Though the futures market went down on election night by 800 points, the Dow Jones Industrial Average has risen since Trump was elected. Interest rates have increased by over 30 percent since the election.

What property owners should know about drones

California commercial real estate owners should be aware of the changes the drone age has in store for their industry. Drone use has dramatically increased among real estate professionals in the latter portion of 2016, and that trend promises to continue in the future. There are many potential applications for commercial drones in the real estate market, and drones are even being used in brokerage marketing efforts. In some cases, drones are used in construction projects as well.

With the increased use of drones, major retailers such as Walmart and Amazon have begun experimenting with them in package delivery. Walmart plans to use drones for faster warehouse distribution, and even UPS has made headlines with a drone that was used to deliver an inhaler. Small businesses are discovering new and innovative uses for this technology as well, and one San Francisco pharmacy has begun to use drones to deliver prescription drugs to its customers.

Learning about interval funds

Real estate interval funds are a type of mutual fund that is an increasingly popular option for people interested in alternative types of vehicles. California investors who are interested in commercial real estate should know the benefits and disadvantages of them.

Interval funds are appealing investment options because they allow retail investors to invest in institutional-grade real estate with a low investment minimums. Compared to other types of mutual funds, these investments, which can include private real estate equity, private real estate debt and commercial real estate credit, usually result in high returns.

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