Commercial real estate has traditionally been viewed as a hedge against inflationary pressure. This dynamic is beginning to playout in the CRE market as interest rates and prices continue to rise over the foreseeable future. This event is largely dependent upon how the federal reserve reacts to the warning signs. As of now, the federal reserve has stood idly by on the sidelines. If all indicators of inflation start to point north, expect a continual stream of investors flooding into real estate. And, with current owners, expect to see rents climb to offset any imbalance to their bottom line.
Not every asset class is poised to see an inflow of investment capital. It is expected that multifamily will continue to profit the most, coming off the banner year in 2020 and first half of 2021. However, this does not come without a little heartburn. Prime deals are hard to find and prices are still at record highs. Any inflationary hedge is paid for on the front end of the deal cycle.
There are a couple of risks that investors should be aware of as they head into an inflationary market. If investors enter a long-term inflationary period, and are not prepared, they will have to refinance into a higher interest rate debt. This, obviously, will have a negative impact on their cashflow. Secondly, if you are going to invest, be certain to have long enough debt term to stave off and secure against forecasted inflation.
To learn more about how property tax issues can affect your investing strategies, please reach out to Tim Feagans directly at email@example.com.