What is the State of Industrial? What to Do if Your Rates Are Rising this Year?
Manage episode 355948489 series 2557320
What is the state of industrial investing today? Are the rising interest rates affecting some properties? What can you do to fix this problem? Chad Griffiths, Partner at NAI Commercial Real Estate, has been working in the space for over a decade and shares his insights.
Read this entire interview here: bit.ly/40SLu0O
What is happening in the industrial world today?
My overarching investment philosophy, and I try to share this with as many people as possible, because I think it's just the healthiest way to look at real estate, is investing very long term, I would almost like to think that I have an infinite money timeline. There are some properties that I don't ever want to sell, they might go to future generations. Anytime I buy a property, I must be as comfortable owning this property in 10 years, as I am today. That type of mentality smooths out these aberrations that we're going through. I think that this is going to be a painful aberration but I also think this is going to be temporary. I don't see interest rates being able to sustain this high going much past 2023. All the governments that are sitting on so much debt, all the corporations, all the households, by design, they're trying to curb inflation by pulling the interest rate lever, but it's making everything very expensive. And I do think that they'll pull that lever too hard and before we know it, we're going to have recessionary pressure and that comes with political implications. It's very hard to get reelected for a politician if they're in a deep recession. We'll start seeing all sorts of promises coming out this year, whether it's the other side saying, We're going to lower interest rates to stimulate the economy. And then the incumbents are going to say, We're going to do the same thing. I think we live largely in a political cycle more than an economic cycle because there are too many people pulling levers to try and get themselves elected. I don't think this is going to be long term in the grand scheme of most of our properties.
What would you do if you had a mortgage coming up?
I would probably raise money to pay that mortgage for the next couple of years, borrow from whoever you may need to borrow. Even credit cards potentially, there are several credit cards that you do not pay any interest for a year, I would potentially do that. If I believe that the rates are going to be going down. Another idea is start selling, or looking at partnerships. We have to do what we have to do. It’s also part of all the preparation that we all have been talking about over the last five years, that people have been thinking, The recession is around the corner. The people that have not prepared and bought at 4% cap rates with 20% down, that’s not on us because the wise investors have been warning people about this. It takes a 10% vacancy to destroy a deal in a recession. If people do not underwrite for that…they should have done their homework. A lot of people benefited over the last five years, and the ones that kept being super aggressive, you might need to take some money out of the benefit that you got over the last five years and put into these deals that might be suffering for the next couple of years, in my opinion.
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