We have always considered asset management to be the most important element of our investment strategy. Sure, it’s important to be able to buy right, find good deals and not overpay. It’s also really important to finance right and seek the most efficient debt for any given strategy. But great asset management can be the difference between comfortably outperforming on an asset and struggling to meet investor expectations.
And yes, sometimes asset management can also be the difference between limping to the finish line and not being able to finish the race at all.
Operations, operations, operations
We have been spending a lot more of our time this year on asset management. Not because its importance has increased, but because market conditions are getting more difficult for everyone.
Everyone is starting to feel the effects of inflation. From our resident’s point of view, they are feeling the squeeze on their budgets, and this makes it harder to face high rental costs and potentially accept rental increases. Our employees are feeling cost pressures too and are looking for higher paying jobs to help to ease the burden. Our vendors are facing cost pressures and are looking to pass these higher costs onto their customers (i.e., Us!).
Of course, it’s also well documented that certain uncontrollable costs have been increasing. Taxes and insurance have increased disproportionately this year and the net result is that all operators across the country are experiencing higher costs and a more difficult trading environment.
Economic uncertainty is also playing a role. Many Americans are wondering whether they will still have a job 6 or 12 months from now. Again, this is affecting our residents, it’s affecting potential residents who are considering where best to find a job and live in the short term, and it is also affecting our staff who may be evaluating their options with the goal of making the best decision for their families and for their personal circumstances.
Are there buying opportunities?
As we’ve said before, we believe in the fundamentals of multifamily real estate in the long run, and we would like to continue to acquire great assets. Hard assets are a great hedge for inflation, and as long as we are buying in the path of progress and where population is growing, we are confident that we will be able to generate great risk-adjusted returns for investors.
While we are seeing some new deal flow at the moment, the volume of deals is down significantly compared to this time last year. We feel that many of the marketed deals are still over-priced and are not yet representing good buying opportunities.
Anecdotally, there is some off-market activity happening, but most operators appear to be looking for short term injections of capital to buy themselves time, rather than looking to dispose of troubled assets.
Overall, we are in a very dynamic market at the moment, so we will continue to underwrite and offer on as many deals as we can to make sure that we keep a pulse on the market and are ready to act as soon as we start to see strong opportunities.
Keeping lines of communication open
Another aspect of the business that we are very passionate about is creating an outstanding investor experience for all investors and there are plenty of opportunities in the current environment to demonstrate that this is a core value within our business.
Oftentimes this means doing simple things, like communicating consistently and openly.
Given uncertainty in the market in general, we want to be intentional about how we communicate with investors. We want to be sharing what we are seeing in the market, what’s happening at our assets, what’s going well, what challenges we’re facing and what our strategies are to overcome any challenges.
If you think we’re doing this well, please let us know. And more importantly, if you think we have some room for improvement, please let us know as well. We are always looking to improve and create a better experience for all investors.