2024 Multifamily & Commercial Real Estate Forecast

Discover what you need to know about multifamily and commercial real estate investing in 2024 so it can be your most successful year ever!

 

2024 Multifamily & Commercial Real Estate

I sat down with Julia Sheehan, one of our leading mentors, to talk about multifamily and commercial real estate investing in 2024. Below we discuss all the hot topics, from how the upcoming election will impact interest rates to the billions in maturing multifamily loans. Here are our predictions for where the best investing opportunities are in multifamily and commercial real estate:

2024 Interest Rates

Julia: Let’s dive right into it Peter, this is an exciting topic. What is your first prediction for commercial real estate in 2024?
Peter: My first predictions is probably the most important. I’m going to have to say that interest rates are going to drop in 2024. Not because we have tamed inflation, in fact inflation has gone up a little this last month. My reasoning for the drop is not that. I think interest rates will drop slightly because next year is an election year. And I think if the current president wants to get re-elected, he can make himself look good by dropping interest rates to boost the economy. So that’s why my first prediction for 2024 is interest rates will come down. I don’t know how much, maybe a half point by the end of the year. But I think the spikes are going to end in 2024.

How Lower Interest Rates Will Impact the Market

In commercial real estate, transactional volume has decreased the last few years because of high interest rates. However, with a drop in rates I don’t think we will see an increase. I think the level of downward trend will be lessened and maybe stabilize a bit before it comes back up. You’ll get more buyers in the market because more numbers on the deals will pencil out with the lower interest rates. So, I think you’ll see a few more transactions going on.

Also, I think you’ll see a little more positivity in the market because interest rates are emotional. People see them coming down, and they get excited. There’s a human element there. So, I think it being an election year, we can count on interest rate coming down a bit.

Julia: And with more investors in the market, it’s going to stabilize values, maybe even increase them. So, it will be interesting to see.

Do you think interest rates will go up or down in 2024? Let us know in the comments or text PETER to 833-942-4516.

Multifamily Investing in 2024

Julia: Alright, so what do you have for number two? What’s your second prediction here?

Peter: I think multifamily, which you and I own the most of, is going to remain strong in terms of pricing and rents and we should not look for multi-family prices to drop. Some people are waiting on the sidelines, waiting for it to drop 30%. That’s not going to happen. And I think for anyone who has wanted to do multifamily, sitting on the sidelines in 2024 waiting to see what happens is a mistake. I really do. I’m older, Julia you’re younger, but we’re still long-term holders of multifamily because that’s where you’re going to win. You need to get in the game.

Julia: High home prices, they’re going to keep people from buying a home. So that’s going to cause that renter pool to continue to increase, meaning we’re going to have an increase in long-term renters. So, what’s more affordable? Is it more affordable to rent or to buy a house?

Peter: Well, you think about it, the average mortgage in this country is about $3,400 a month and the average rent is about $1,800 a month. So do the math. And right now, because it’s more affordable to rent, that’s going to put downward pressure on the multifamily space and help sustain everything, both prices and rents.

Julia: And property taxes, insurance, utilities, those are all going up.

Peter: Yes, on some of our properties insurance has tripled, and it keeps going up. How does that make multifamily better? What it does is it puts more pressure on the consumer to stay put as a long-term renter.

Julia: Exactly, and to that point, you have this pool of homeowners like you and I who have very low mortgage rates. Why would I trade in and go to an 8% interest rate? So, the overall answer to these questions is really that it’s going to put demand on multifamily and mobile home parks. People are going to be moving to those kind of asset types because the housing prices are unaffordable.

Peter: And Julia, I would put mobile home parks on par with multifamily in terms of positivity for 2024. It’s a lower level of housing. Let me ask you this. Is this country getting richer or poorer? This country’s getting poorer unfortunately. And the mobile home park investor or owner, they’re looking good for years to come because of what’s going on in our country. So those of you wanting to know what’s the best for next year, Julia and I think it’s multifamily and mobile home parks.

Maturing Multifamily Loans

Julia: Absolutely. I have another question for you. So how much of an impact will maturing multifamily loans have on the 2024 market in your opinion?

Peter: That’s a hot topic right now and it has been since the middle of this year, 2023. Because if you look at the stats, there is about $49 billion dollars in loans maturing in 2024. That’s a big number. In the next 12 months, $49 billion in loans need to be refinanced or paid off. And when you think about it, the person who bought their property a few years ago, now their loan is coming due. What’s going to happen when their interest rates that they were able to get three and four percent, and next year they’re paying six or seven percent. Can they afford to do that? Can they afford a double mortgage payment?

How Maturing Multifamily Loans Will Impact the Market

So, I think we are going to see distress in the multifamily market because of that. People are either going to have to sell, sometimes at a good price. I don’t see a lot of multifamily loans going back to the bank because the equity is there. So don’t expect this to crash the market. It’s not going to crash the market, but you will see distress. I’ve already seen it locally here where I am, but it’s not widespread. But it’s going to happen.

Julia: Some of those deals are going to be really good value-add deals. So you need to be prepared for that.

Peter: Yes. When you say prepared, what I think is you should be prepared financially. We call this having dry powder; having your money on the side waiting to go into this market or have your investor money waiting to pounce on opportunities.

So, with 49 billion maturing in 2024, everyone out there think long-term multifamily. Think long-term, and you will win. And 2024 is when you should get started if you haven’t already.

Julia: I agree. I’m looking for opportunities.

Peter: I sure am too. And believe it or not, I think I told you this yesterday, I was outbid recently by quite a bit, so people are still bidding. So multifamily is still good and you’re thinking long-term.

Self-Storage Investing in 2024

Julia: Well, let’s switch gears then. Let’s start talking about some other asset types. We did cover a lot of multifamily. That’s going to be a really good investment. But what about the other asset types? First question for you, self-storage, I always wonder isn’t it considered a luxury in some markets? And when I say luxury, I mean is it going to be the first to be cut in a recession?

Peter: Great question. During a recession people will cut back. What I like about self-storage, is when people cut back, they will downsize and put their stuff into storage. And this is already proven with our current students that you help manage, they’re doing well, and they have done well even during the pandemic. The other thing, I have friends that have things in storage, and they also cut back, but they didn’t cut back on storage because it was only like $90 a month. So, it doesn’t cost a lot to use storage. So that’s why I think in 2024, even with a recession, storage is going to be strong.

Industrial Flex Space in 2024

Peter: I think the same thing with industrial. I’m bullish on industrial warehouses. Some areas in the country are overbuilt, but for the most part it’s still strong. Years ago, e-commerce caused industrial warehouses to go up and it’s going to continue. E-commerce is still leading the way.

Julia: All our students that have warehouses, they’re doing well too. So, I don’t see that being an issue whatsoever.

Peter: And our latest closing, if you recall the feasibility study said that he should build flex space because of a shortage of flex space in the city. So there’s always opportunity. If you have the space and you have self-storage, why not put maybe an RV space there? Industrial condos, there’s opportunity to do that. You just need to know what to put there. And that’s what we specialize in helping our students figure out.

Mobile Home/RV Park Investing in 2024

Julia: Exactly, and that brings us to mobile home parks and RV parks like you just mentioned. I think those are going to kind of fit together with multifamily. I think it’s going to be lumped into the multifamily predictions that we have in terms of just being positive in 2024. It’s still the idea of a roof over your head. So, I think that’s still going to stay strong.

Peter: Yes, let me ask you this question on mobile home parks. Our current students that own mobile home parks, how are they doing? Are they raising their rents? Are they stable? Do they have a lot of vacancies?

Julia: They’re doing very well. The vacant units are being re-rented quickly and they are raising rents. They’re doing very well with mobile home parks. Again, it’s the whole concept of trying to find something that is affordable in this economy. And a lot of people, that’s what they want to do. It’s a very good time to be an owner of these asset types across the country.

2024 Office Market

 Julia: So, office, that’s another big one that I think a lot of people have a question on. Office historically had a decline because of covid and everything. So, what do you think we’re going to see in 2024?

Peter: I’ll tell you what I’m currently seeing right now, and then we’ll go into what I think is going to happen. So currently, there’s still a lot of vacancy. I’m in a big city here in California and I would say we probably have over 30% vacancy, maybe even more. You can go downtown, and no one is down there and it’s kind of scary. So that’s the fact of the matter today. And I’ve seen properties that were valued at $200 million in 2021 sell this year for $70 million. And in California, here on the western side of the United States, I’m seeing a lot of loan defaults with REITS worth hundreds of millions of dollars. They’re just handing over the keys to the bank and walking away. And it’s because everyone’s working from home. So, a lot of volatility there.

The guys that are suffering are the C Class office building that are older, not looking as nice, but A Class, like where I have my office, they’re booming. My landlord, my office building is 90% occupied right in the middle of San Francisco. So, the nice office buildings are going to do well and there’s opportunity. The companies that I’ve seen buy the ones that kind of went belly up, they are dumping hundreds of millions of dollars into those buildings to make them nice. That’s where the opportunity is. But that is for the big player, not for our average student. For our average beginning commercial state investor, I would say don’t play in that field. You don’t have to. We have other opportunities for you.

Julia: That requires a lot of capital, the repositioning of an older office to get to that A-class quality. It’s going to require a lot of funding. And the big cities near me, they are starting to bring people back to the office. But I think what we’re going to see long-term, office is going to level out. If there is going to be an increase in office, it’s going to be, like you said, a flex space type use. They’re going to do additions to those buildings to make it A class, add the amenities to it. But again, requires a lot of capital to do that. Requires a certain company to come in and do that. So yeah, that’s what we’re going to be seeing.

Peter: I see that here too. I’m not too far from Silicon Valley and yes, you do see the news of the layoffs and things like that, but for the most part they’re going back to the office. The freeways heading down towards Silicon Valley, those are getting more plentiful of cars. During the peak of the tech, you couldn’t go anywhere because of all the cars and then when the pandemic happened the freeways were empty. Now it’s slowly starting to come back. So, office is not going to go away. It will make a rebound, however it will be a little reinvented. But just be careful with office.

2024 Economy and Consumer Sentiment

Julia: Yes, I couldn’t agree more. What do you have for your third prediction, Peter?

Peter: My third prediction is about consumer sentiment. How does the average consumer feel about the economic direction of our country? If you think about it, if the sentiment is high, they’re spending money boosting up our economy. If they are fearful or cautious or guarded or they do not have a good feeling about our country, they pull back their spending and that hurts our economy. So, consumer sentiment is important. It’s not talked about enough, but it is really important. And I think the average consumer is a bit hesitant or fearful in our economy.

Julia: I agree. The average American, I think they are thinking negatively, and they’re thinking recession. But as an investor, this is exciting. I see this as an exciting time. This is opportunity. That’s the big word that comes to mind for 2024 is opportunity.

2024: The Year of Opportunity for Commercial Real Estate Investors

Peter: Okay, everyone, Julia has made up her prediction! 2024 is the year of opportunity. What do you think? How do you feel about the economy? Do you agree or disagree with Julia? Let us know in the comments or text PETER to 833-942-4516. Julia says opportunity. What do you say?

Julia: Do you agree with me or disagree?

Peter: I agree because we have strategies that we can do to buy distressed properties and make them better for big returns. That’s the mentality you need to have. So these crises that we see are opportunities, and this is exactly what we do for our students. Julia, how many times has a student brought a deal to you and said it was a dog of a deal and then you go, wait, did you look at this? Suddenly, their eyes are open and then we close on a deal and make a bunch of money. How many times has that happened?

Julia: I couldn’t even count Peter if I tried. Things always get missed.

Peter: You need those eyes; you need that perspective. Is your perspective fear? For me, back 25 years ago, that’s how I looked at risk. I didn’t realize that you can manage risk with your experience and wisdom and having a good team and knowing your numbers. That’s what we’ve done and that’s what we do. And that’s what you do for our students.

Julia and Peter’s Investing Wisdom

Julia: And that brings us to the point of opportunity, and everybody asks, should we invest today with everything going on, or should we wait? And our answer to that would be waiting’s not recommended. In an uncertain market, smart investors do these 3 things:

• Look for the opportunity. There’s always going to be a good deal out there, but you need to look off market.
• Become a nonstop learner of real estate investing. Learn everything about the market around you, about the market nationwide. It’s so important to know what’s happening nationwide and specifically in your market. Learning the deals, how to market and find good deals. How to analyze those deals, how to bring them to closing, and how to structure those deals. Most importantly, especially in this environment with high interest rates, how to structure the deals because the higher interest rates, a lot of time will kill the deal. But we have ways to get around that. We have ways to restructure deals and to make them make sense for both parties. That’s really the ultimate goal.
• Get Help. The most important thing to do in an uncertain market is to make sure you get help. Get a mentor, especially a mentor that’s been through the three cycles and survived them all, like you Peter.

Peter: That is so true. You and I have a passion for teaching people and helping them do what we’ve already done. And that’s what life is about. You’re spot on. And when you say get help, if you want to build a commercial estate portfolio the right way, in a smart way and leave a legacy for your family or retire from your job, you need help from us, Commercial Property Advisors. Every successful commercial real estate investor has a mentor and you can get your mentor here:  Commercial Property Advisors Protege Program

We have Julia and other coaches with decades of experience, owning thousands of apartment units in commercial space around the country. And that’s what you need. Every student who closes on a deal, it’s the largest financial transaction of their life and you need help to do that. And if you have money and you want to invest and you don’t want to get help, then don’t invest. Just hold onto the money. We don’t want you to lose it on something else.

What About Investing in Gold and Silver?

Julia: That makes a good point too. I have another question for you that brings up the capital that people have. You always see commercials now about investing in silver and gold. What are your thoughts on that strategy?

Peter: Well, that’s certainly a strategy. It’s a way to diversify. But anything that you put any money into, don’t you really want to understand how it works? Even though gold is stable and silver, there’s a strategy of buying metals, like buying real estate. So, what are you going to do? Are you going to study gold? Or are you going to study real estate? Pick one. But I can tell you nothing beats what we do. We buy commercial real estate, apartments, stores, mobile home parks, and we get income, we get appreciation that sometimes we can force, and we get depreciation. And we get massive tax benefits. Can metals, gold and silver do that for you? No, it can’t. Is there any other investment vehicle that gives all that? I don’t think so.

2024 Focus: Investments that Provide Income, Appreciation and Depreciation

So, if we leave you with anything for commercial real estate investing in 2024, we want you to focus on an investment vehicle that provides income, appreciation and depreciation. Those three are key to building long lasting generational wealth. 2024 is going to be an incredible year! Julia just called it. She said it’s the year of opportunity and I agree one hundred percent!

Every Successful Commercial Real Estate Investor Has a Mentor

Every successful commercial real estate investor has a mentor. Get your mentor here:  Commercial Property Advisors Protege Program