Private equity real estate investments have been a boon for many investors over the past few decades. Since the 1970s, investing in real estate has become a popular strategy for growing one’s wealth.
In recent years, however, the industry has faced significant headwinds in the form of rising interest rates and increased supply in the market. As a result, many firms have seen declines in the value of their investments, and some have exited the market altogether.
Fortunately, the asset class has not suffered the same fate as some of the others, as private equity real estate investors have been able to weather the storm through strategic asset allocation decisions.
However, to continue to grow their business, these companies will need to continue making the right investments and remain on the cutting edge of technology.
All in all, 2022 hasn’t been a great year for many investors be it institutional investors or retail investments. The stock market experienced a 16% decline year over year and many dips into a bear market. Things weren’t much better for real estate either. The average home price hit its greatest peak in history before dropping sharply as home sales sputtered in an environment of rising inflation and interest rates.
Many real estate investors have waited for better buying chances during the last few years as there is a significant rise in the price, cost of borrowing, intense competition, and extreme economic volatility. The good news is that 2023 might mark a fresh real estate investment boom.
For institutional investors and private-equity real-estate organizations, with current investments in the real-estate class, real estate market conditions are fantastic as they benefit from growing values and greater demand.
However, the current economic climate seems to be an opportune moment for new investments from HNWIs and Institutional investors into private equity real estate for wealth generation. When there is a lot of competition, it is imperative to contend with numerous offers that frequently go above the market price conditions.
While the purchase price of assets in the real estate market might more affordable in the recent times, the ever increasing interest rates could still be a challenge. The Federal Reserve has taken a hawkish stance on the continued hike of the federal funds rate in 2023. The federal funds rate doesn’t determine mortgage rates, but it does impact them.
JPMorgan Asset Management stated in its “2023 Long-Term Capital Markets Estimates” research report, about assumptions for private equity in 2023 are much higher than those in 2022. The research report is of the viewpoint that the entire rise is being driven by the PE’s public market component, even if cyclical valuation considerations and ongoing trends would probably result in lower margin returns, the long-term aspect of the sector is strong, sustainable, and can be resourceful in terms of wealth generation.
Real estate can serve as an inflation hedge, at least in part, according to extensive research for institutional investors and HNWIs. One reason is that, in general, property holders can raise the rent when the economy is doing well, which raises the value of the property.
Secondly, a lot of real estate leases contain clauses that guarantee periodic rent increases that are proportionate to inflation.
Third, increased inflation implies higher replacement prices for things like building supplies, labor, and land. These variables increase the cost of new development projects, which should reduce the amount of new supply and increase the opportunity for existing assets to increase rents and increase in value leading to passive income and wealth generation.
At 33 Holdings, we have an appropriate capability mix of financial asset management acumen, real estate acquisition strategy backed by deep insights of local market conditions and vertical integration needed to enhance the value proposition of every real estate asset we acquire.
Be it a retail investor, an institutional investor, HNWIs or family offices – our investment relations team has the right product mix of real estate assets, hedge funds including opportunity zone funds to generate consistent, long term, positive returns for every genre of investor.
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