Our Director of Investor Relations recently spoke on a panel at THE MULTIFAMILY AP360 Summit multifamilyap360.com where they discussed the best asset classes to invest in over the next 5 to 10 years. Here’s a recap of Joe’s comments for those that could not attend.
To invest for the next 10 years, it is important to identify the macro trends that are likely to persist and two big themes came to mind:
- Currency devaluation or loss of purchasing power due to money printing.
- Asset inflation due to sustained high input cost from oil supply constraints.
Over the past century, nations have engaged in competitive currency devaluation in order to drive export sales, reduce trade deficits, stimulate out of recessions, and offset the deflationary impact from an aging population, technological advances, and globalization. Once the U.S. left the Gold Standard, central bankers rediscovered that printing money outright is a lot easier to pay for things (rather than raise taxes) but unfortunately an enormous amount of money supply / debt was created especially in the past 20 years following the Great Financial Crisis and a Global Pandemic.
Total global debt to GDP reached nearly 400% recently and we are now dealing with a huge debt bubble where central bankers have to keep printing just to pay for the interest cost of servicing that debt and cause currencies to continue to lose value over time. We passed the point of no return to where we have to keep inflating the money supply or risk the bubble bursting that would cause massive bankruptcies and a significant depression.
A related but different issue is that oil supply constraints will keep asset prices elevated. Due to the highly cyclical nature of commodities, oil producers have reduced capex spending significantly in recent years. Add in the global ESG mandate that favors carbon neutral, renewable and green energy, oil producers are penalized with a higher cost of capital. They are basically persona non grata and are not incentivized to increase production.
It costs several $billions and takes years to increase oil production meaningfully so there will not be any real relief for a long time, meanwhile the demand for oil has not waned as it is used to produce many things. Higher input costs from elevated oil prices make their way through the economic machinery and cause everything to become more expensive. Should economies start growing again, demand for oil will increase and push asset prices even higher.
Given the above, it is imperative for savvy investors to protect their purchasing power through owning hard assets that are limited in quantity, difficult to produce, or have a lot of utility. Some examples are oil and gas, precious metals, rare art and collectables, all types of real estate, and perhaps even Bitcoin. Within the real estate sector, Joe talked about owning asset types that are necessity based and or supported by favorable demographic trends, such as affordable or workforce housing, industrial and flex space, neighborhood retail strip centers, and senior housing.
Asked if he had $100K to invest today, Joe would favor investing in Class B&C Multifamily to take advantage of discounted pricing from distressed sellers. While there are short term issues with some operators coming under duress from higher debt servicing costs, investing in multifamily properties tend to offer some of the best risk adjusted returns due to being recession resistant and a great inflation hedge. There is a significant shortage of affordable housing units and as the cost of home ownership rises with higher inflation, more people will become renters and drive up rents and apartment prices.
Break of Day Capital specializes in acquiring underperforming commercial multifamily properties where we can reposition and deliver strong returns to our investors while providing our residents with a higher quality of life and community that they can feel good coming home to.
Kindly reach out to Joe at joseph@breakofdaycapital.com should you have any questions or like to learn more about Break of Day Capital opportunities.
Sources:
https://www.lynalden.com/does-the-national-debt-matter/
https://www.lynalden.com/fixing-the-debt-problem/