From the Desk of CF Capital: November Investor Report

Hello Friends and Investors,

We hope you and yours are enjoying the season of autumn as we welcome the month of November. You may have found yourself in the hundreds of millions of Americans that welcomed this month with a significant cold snap, firmly cementing the transition to the fall season. The kids in our lives (and their parents, for that matter!) broke out their winter coats, hats and gloves and still had a blast for Halloween, nevertheless! We hope you did too.

In this month's investor report, we're excited to share what we've been up to and what we're seeing in the market in an effort to help our valued partners make more sense of the complexity of the current and projected marketplace.

Strengthening Partnerships in the Real Estate Capital of the World

First, in October, it was great to spend time in NYC, where we had the privilege of spending valuable time with some of CF Capital's important strategic partners (some of the most elite minds in our industry, nationwide), discussing the state of the market and strengthening our relationships for future opportunistic pursuits. We are excited about the opportunities that are emerging through these best in class collaborations and look forward to sharing more details in the coming months, to your benefit.

Market Updates: Residential Market Dynamics, Midwest Stability, War in the Middle East and Interest Rates

Multifamily real estate continues to be a resilient and attractive investment in today's ever-changing and in many cases turbulent economic landscape. Demand for quality apartments remains robust, driven by factors such as high single-family mortgage interest rates, rising costs of home ownership, steady population growth, and select job market expansion. As the chart below shows, the gap between homeownership and multifamily rents are at historic levels. This spread driven by increased mortgage rates coupled with the overall housing shortage are keeping demand for rental property strong.

Source: CBRE 

CF Capital and our partners are actively invested in Kentucky and Indiana and are further pursuing growth in the Major MSAs of each state in addition to Cincinnati, OH, and in Nashville, TN. Depending on who you speak to, these markets would be considered the Midwest, while in many circles Kentucky would be considered the Southeast, and usually Tennessee is firmly considered Southeast. Regardless, the characteristics of most of the markets that we target (with the exception of Nashville), tend to follow Midwest trendlines. The Midwest, historically known for steady and attractive growth, remains strong and steady while some other regions of the country are seeing rental rate declines. The Midwest's healthy overall economic conditions, population stability, stable population growth, and continued rent and job growth make it a compelling destination for investment in otherwise volatile macroeconomic conditions. Recent reports of our target markets like Louisville, Indianapolis, and Cincinnati leading the nation in rent growth and salary expansion for 2023 highlights the region's position for long-term value, compelling us to continue to pursue attractive value-add multifamily opportunities to share with you.

Unless you live somewhere deep under a rock, you are well aware that in October, a brutal war in the Middle East broke out from the attack on innocent civilians in Israel. Our hearts go out to the many families impacted, and the many families that are being impacted in the conflict since the initial attack. Geopolitical concerns are on high alert across the world, impacting capital markets and anticipated market conditions. There are no certainties of how things will play out, but investors are on high alert as governments play the high-stakes chess game of incredibly complex circumstances that no doubt impact financial markets, investor sentiment, and the flow of capital.

Last week, the FOMC met and left interest rates unchanged, making it the second meeting in a row where the central bank has skipped a rate hike. Capital markets remain very volatile, influencing decisions related to capitalization, growth targets, and the broader investment landscape. Uncertainty remains, but a pause gives players like us more clarity and stability in the real estate market today for investors positioning for transactions. The recent jobs report showed a softening employment market, which caused treasuries to dip meaningfully as the market anticipates an overall weakening economy, signaling perhaps future dovish central bank behavior. While interest rates are not directly correlated to cap rates (ie. multifamily asset valuations), they are absolutely sensitive to them, and overall cash flow is certainly impacted. Time will show how the capital markets continue to make sense of the state of the market, after a dizzying last 20 or so months of interest rate hikes working their way through the system. We continue to believe this time of uncertainty remains a window of opportunity to secure attractive deals at discounts, while being properly capitalized for longer term hold periods.

Looking Towards 2024

As we look forward to 2024, we are closely following the significant wave of multifamily maturities coming due, comprising hundreds of millions of dollars worth of quality assets in our target markets that may be forced to transact at adjusted market level prices. The story of how this landscape will evolve, including strategies for recapitalization, refinancing, or asset disposition at potentially reduced valuations due to increased interest rates and cap rate expansion, is still unfolding. Time will tell, and flexibility remains our north star as we navigate these ever changin market dynamics.

Thank you for being an integral part of our community. We look forward to keeping you updated on the latest developments in the real estate market and opportunities to grow your wealth through real estate at CF Capital. If you have any questions, comments, or suggestions, please feel free to reach out to us.

Wishing you a prosperous November!

Your Trusted Real Estate Partners,

Tyler & Bryan