Super Bowl LIII – An Accurate Realty Capital Market Forecast?

Chicago, Illinois, February 9, 2019 – This year’s Super Bowl was another record-breaking win for the New England Patriots.  The game culminated in the Patriots sharing the record for the most amount of Super Bowl victories by any professional football team.  The game outcome in many ways parallels how the real estate capital markets are expected to perform.  The industry is witnessing another winning season that compares to the Super Bowl victory as follows:

Dynasty:   The commercial real estate market is enjoying an economic boom for nearly a decade.  The current cycle is the longest streak in modern history.  In fact, longer than the Patriots winning run.  Given favorable unemployment and solid GDP growth statistics, both hovering in the lower single-digit range, this year should continue showing strong results.

A Game of Defense:  The low score of the game (17-3) indicates that defensive plays dominated the field.  Both teams preciously fought for minimum yardage, allowing only one touchdown, with the remaining scoring limited to field goals.  Likewise, funding sources are more protective of earned gains.  Real estate investors are wary of several years of compressed yields leaving little room for profitability for many types of deals.  Lenders are also playing defensively by restricting funding leverage on existing deals and avoiding all but the most conservatively underwritten new-construction loans.  This year’s motto?  “Big scoring victories are less important than simply winning.

Missed Opportunities:  The 2019 Super Bowl was the lowest-scoring game in the history of this epic showdown.  The losing team came to the game with a better record, but the winning team had more experience.  Due to strong defensive action combined with miscalculated offensive strategies, many scoring opportunities vanished.  Penalties were few, but punts were many.  Experience won, but not impressively.

Getting off the bench:  The Super Bowl can be low or high-scoring, and ultimately results in a victory for a single team.  Realty investing, in contrast, reflects scores judged by profitability.   However, profitable investing is a subjective measure as each investor will have unique risk/reward objectives.  To be a winner, investors need to be in the game.  No risk, no reward.

According to The Real Estate Capital Institute’s® director, John Oharenko, “The game does not need to be exciting for leading to victory.  The ‘Yield Field’ is filled with veteran players challenged by newcomers in finding winning strategies and investments.”  He adds, “Will both groups miss opportunities by playing too defensively because of low yields, limited leverage and looming economic uncertainly?  Will investors punt or score by assuming additional risk?”

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