Inflation is here and shows no signs of stopping. Consumer prices are up 9.1% over the 12 months ended June 2022, the largest increase in 40 years. Investors have long relied on real estate as a trusty hedge…but not all asset classes are created equal.
In such an accelerated inflationary environment, residential real estate presents a more agile option compared to commercial properties (annual lease models allow them to reflect inflation in rents to offset increasing purchase prices). With interest rates and home values accelerating in parallel however, some of the leading institutional investors in the Single Family Rental (SFR) space like KKR and Blackstone have begun slowing from a run to a walk on purchases to protect their cost basis.
So what’s an investor to do? With SFR fundraising at an all-time high (over $45 billion in capital announcements during 2021), the capital deployment show must go on. Some analysts are confident that the housing affordability index will set a speed limit on the Fed tightening campaign, easing investor concerns, but uncertainty will remain in the market…slowing transaction volume…and reigning in valuation increases. Opportunity may exist at this “dip” forecasted by some landlords as soon as Q4.
At this inflection, those institutions that have invested appropriately in digital Finance tools will be able to leverage the vast amount of market data at a micro-geographic level to identify assets and calibrate pricing to optimize capital deployment. The proptech ecosystem extends beyond Search and Sale to enhance returns through the investment life cycle with Rent Pricing Analytics, Data & Financing, Portfolio Management, Home Services, Construction Technology, Broker/iBuyer, Property Management, and Reporting systems. Furthermore, these operational tools are becoming more seamlessly interconnected with the Accounting and Finance machine providing an end to end transparency around performance. All table stakes if you want to be competitive in the next round of real estate investment to defend against the economic woes ahead.
Investors across the industry have cut buying activity by more than 50%