Hello!
I hope you all had an enjoyable Thanksgiving! My wife and I welcomed our second-born daughter a few weeks ago and soaked in the time as a new family of 4 (photo here).
As we head into the final month of the year, the investment world is pushing final deals across the finish line, reflecting on record activity, and looking ahead to next year. Below, I dive into suggestions for 2022 planning and the biggest topic of conversation today: inflation.
Overall Market
- 2022 is around the corner, have you set investment goals for the year? Even if you’ve owned property for 10+ years, do you have plans to maximize your investment in the coming year?
- I am sitting down with many investors to discuss their plans to make 2022 their best investment year yet. For you, this could mean an increase in cash flow, managing rising expenses, making capital improvements, or simplifying your portfolio. Let's find time to discuss specific strategies for your assets. Email me here and I'll ensure you’re in the position to meet your goals for the new year.
- 2021 continues to push records in investment sales across the Inland Northwest, as capital has looked to markets experiencing rent and population growth over the last 2 years.
- Based on CoStar data, Sellers are in the best pricing position in 15 years, the highest since 2006. If you are considering making a change to your portfolio, there has not been a better time to achieve maximum value in the last 15 years.
- Inflation. This is the topic that could derail that 15-year high in pricing. In October, the most common benchmark for inflation, the CPI, was measured at a 30-year high of 6.2% and that high doesn’t appear to be slowing soon. What does this mean for you as a multifamily investor in the Inland Northwest? I dive into specifics for your situation in the below section.
Multifamily
- What does the 6.2% rise in inflation mean for you as an investor? And more importantly, what can you do about it?
- 1. Your property expenses are going to increase if they haven’t already. This means you should budget for increases at or above 6.2% in payroll costs, insurance, landscaping and maintenance contracts, and supplies. Utilities and taxes shouldn’t increase as rapidly, and advertising costs may remain level given the innovation in the space.
- 2. If you have any capital improvements planned, or are implementing a value-add business plan, expect an even higher increase in cost than ongoing expenses, as construction has seen some of the highest increases in pricing, upwards of +21.1%.
- 3. If you planned for a refinance in 2022 or your debt balloons in the next 2-3 years, you should budget for a rate increase, as inflation will likely lead to an increase in interest rates.
- The #1 thing you can do to mitigate the risk of inflation impacting your cashflow and property value? Keep your rents at market rate. As wages rise with inflation, you need to continue to increase rents to maintain Net Operating Income, or you will start to see a decrease in property value as cap rates level-off.
- Worse yet, your cash flow could decrease, harming your long-term investment goals. Have questions about inflation and its impact on your investments? Email or call me, I’d be happy to provide some of my findings.
Local News
- Recent data shows just how strong the agricultural industry has been through the last 10 years. Agricultural payroll in Yakima County more than doubled. This trend ripples across the Inland Northwest since the agricultural industry is a major employment driver to the region.
- One of the biggest questions I get about the Inland Northwest is, “Where is all this growth coming from?” This migration map paints a clear picture. Growth is coming from households moving from surrounding major metros in Washington, Oregon, and California.
- What’s driving this consistent growth to our markets? When looking at the nation’s demographics, millennials have reached an average age of 33, meaning many are beginning families. Plus, they have been pushed out of cities by recent events and want to live in a family-friendly and affordable environment. Sounds like the Inland Northwest, right? I expect this long-term demographic trend to continue, driving investment growth and activity in the years to come.
Development
- Multifamily development continues to lease at record pace across the nation, and we are seeing this in new construction projects in the Inland Northwest as well. Most new construction is fully leased in 2-3 months’ time with rates well above $2.00/SF.
- Just when you thought construction in the Tri-Cities would slow down, new apartment construction, more projects have been announced! Resort at Hansen Park has plans for over 1,000 units through 2025, and the Robert Young and Associates just announced a 192-unit project in Kennewick with plans for completion in 2023. There is no slowing the Tri-Cities down!
- My favorite recent discovery in local zoning codes: you can execute some of the highest-density apartment projects in Community Commercial or Central Business District zones, often in the best locations, you just have to get creative and add a commercial (office or retail) component.
- Want to learn more about this and see a few on-market opportunities others may be missing? Shoot me an email here and I’ll send over some additional information. We’ll have you in your next site in no time!
I hope you get the opportunity to reflect on the current year in the coming month, and I look forward to working together next year to make it your most successful investment year yet!
Best,
Mason Fiascone
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