Prediction Update: How are my 2024 Contrarian CRE Calls Doing?
Call it 2 out of 3 - not bad
I’ve often said the job of a real estate investor is to predict the future.
And I love that part of this business
(I wonder what that says about me … )
Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future. - Warren Buffet
So true to form, last December I made three contrarian predictions about the 2024 real estate investing landscape.
So let’s see how I did:
1) THE CONSENSUS IS WRONG ON RATES - GRADE: A+
I mean, nailed it. I wrote at the time:
“The entirety of the real estate complex is sure of a single fact: interest rates are headed lower in 2024.
But what if they’re not.”
I identified two flies in the proverbial ointment, geopolitical risk stoking inflation fears and a US economy that outperformed expectations. Both have proven to be true, and the Federal Reserve has responded by pushing rate hike expectations out to the end of the year.
Remarkably, the forward SOFR curve that I showed in December predicted rates bottoming out around mid-2025. Now, only five months later, the capital market savants don’t think that will happen until mid-2028.
1 for 1, let’s keep going.
2) OFFICE DEMAND COMES ROARING BACK - GRADE: C+
Perhaps roaring back was a bit hyperbolic, but where’s the fun in making boring predictions?
According to brokerage JLL, office demand nationally is up for the past nine months straight, and now sits at around 65% of pre-Covid levels.
In my native San Francisco, vacancy continues to hit records but anecdotal evidence and demand metrics are flashing green for the first time in years.
My primary thesis on a rebound in office demand was the return to a more normalized work life, with remote and even hybrid work becoming less prevalent. That hasn’t quite played out, with office occupancy pretty much flat over the past 12-months.
But there does seem to be a growing consensus that companies want butts back in seats.
So, I was directionally accurate but no true contrarian trend has emerged thus far in 2024.
3) UNIVERSITIES FIRE SALE ASSETS TO RAISE FUNDS - GRADE: B+
The year is young, this one has got a shot.
I wrote these predictions at the end of December, a few weeks after the now infamous Congressional testimonies from the Presidents of Harvard, MIT and U Penn.
And while I certainly did not foresee the violence on campuses around the country, in many ways the recent protest incidents should be seen as the symptom, not the disease: Higher education has been ill for a long time and it is only now spilling over.
My premise was that mundane things like enrollment decline, mounting student debt and a rapidly evolving landscape for intellectual jobs, not to mention recent cultural skirmishes, could turn donors away, and that colleges would turn to selling off physical bits of themselves to stay alive.
We aren’t yet through 2024 and this one may seem out of the money, but I’m not giving up on the horse.