Investor Newsletter, June 2023
What is New, Interesting, Important and Useful –
De-Risking Your #Investments in the Current Economic Environment
KEY POINTS
The sudden change in central bank monetary policy, protracted political and heightened regulatory frictions, and increased economic uncertainty have adversely affected the stable and benign investment environment to which investors have become accustomed – across essentially all asset classes and real estate is no exception.
Attractive absolute and risk-adjusted returns can be harvested within selected real estate sectors and markets amidst the maelstrom of economic currents where deeply discounted, high-quality properties can be acquired. This is particularly true within the single-family residential property sector in selected geographic markets.
Advances in technology, tax policy initiatives particularly in the U.S., and focus on impact investing have affected, and might likely continue to affect, how investors and managers invest. Green technology, U.S. Opportunity Zones, and enhancement of economic development
With sustainable growth uncertain, at least for the foreseeable future, value investing could yield more reliable absolute and risk-adjusted returns. Investments, particularly in real estate, can be de-risked by finding deep value and NOT utilizing leverage to magnify returns – unnecessarily and without sufficient incremental upside on a risk-adjusted basis.
Republic Investment Group is well-prepared to prepared to catch “the falling knife by the handle, and not by the blade”, given its deep knowledge, experience, and networks to identify, capture, and monetize investment opportunities – without #leverage.
A CHALLENGING MACRO ENVIRONMENT WITH HIDDEN GEMS OF OPPORTUNITY
Investors deal with two realities, the macro environment that affects the market overall and specific factors that impact selected investment opportunities. It is often noted that when investing in the stock market, investors can “buy the market” and/or invest in specific stocks. Investors can do the same in real estate and essentially any asset class, but should they?
Let’s take a step and look at the macro environment… The COVID-19 pandemic decimated some and enhanced other real estate sectors. Perhaps the office market has the been most negatively impacted sector, while the single-family home market has been the most favored sector. Following the pandemic, the ensuing inflationary government spending programs intended as a palliative, and the elongated Quantitative Easing (“QE”) policies of major central banks, central banks reversed course and instituted aggressive Quantitative Tightening (“QT”) policies – raising interest rates thus resetting the price of risk, the momentum of which has barely abated to date, and thus increasing volatility and creating entropy within financial and real asset markets.
Although the US Federal Reserve Bank, leading the charge, intended to contain if not reduce inflation, collateral damage has ensued, including more recently the failures of a few regional banks. We are not sure whether this development is limited or otherwise. And, of late, there is more attention being drawn to the specters of a US default and the US dollar being supplanted as the world’s reserve currency, each of which could lead interest rates and credit spreads to explode and constrain access to debt capital. Nonetheless, we will defer speculation and remain focused on what we can do to make and manage risk for our investors. We believe these events can enhance Republic Investment Group’s investment opportunity set.
Central bank QT, led by the US Federal Reserve, ECB, Bank of England, and Bank of Japan has withdrawn an estimated well in excess of US$1 trillion as indicated by Bloomberg, and according to Fitch, could reach US$2 trillion over the course of the next two years. Yet, for investors with liquidity and the flexibility to create liquidity, Republic Investment Group believes there are substantive opportunities to reap high absolute, relative, and risk-adjusted returns, and in particular the single-family home market within the greater Dallas, Texas, region. Inasmuch as authoritative real estate market data research platforms, with Green Street, Trepp, Norada, Redfin, and Texas Real Estate Research Center at Texas A&M University among the leaders, have constructive to robust outlooks for the market in which Republic Investment Group invests and operates, outperformance can be achieved through a differentiated, rigorous, programmatic process of discovering, acquiring, and managing selected investments.
As performance and risk data compiled and analyzed by Preqin, PitchBook, and Private Equity Real Estate exhibit for investment managers comparable to Republic Investment Group, many managers have benefited from the tailwinds of QE, strong economic growth, and demographic shifts due to COVID-19 before QT. However, with the headwinds of QT, many managers are now challenged to maintain their gains, even more so with dislocations in debt capital markets, not the least of which, beyond the cost of debt financing, are financing terms and availability…
REPUBLIC INVESTMENT GROUP IS OPTIMALLY POSITIONED
Republic Investment Group believes based on its history of investing in real estate that selection and active management of investment opportunities is a much more profitable approach than buying the market. This is particularly true within the single-family home market where Republic Investment Group specializes. On the surface, that might sound trite, however, it begs the question of how…
Republic Investment Group is well-positioned to capitalize on these currents and cross-currents. What we do differently and well is finding and securing off-market, underpriced, good-quality single-family residential properties through our networks and relationships. This provides an embedded profit that can be crystalized to fair market value in relatively short order through our rehab, rental, and property management operations. Republic Investment Group also has an active build-to-rent (“#BTR”) program executed at under-market cost, which complements the income generation attributions of the single-family home acquisition strategy with capital appreciation. As noted, we do not utilize leverage to amplify returns…
Non-Leveraged Single-Family Real Estate Investing - A Reliable, Time-Tested, and Timely Risk-Based Approach to Achieving Higher Risk-Adjusted Returns
We welcome your questions and comments and would welcome the opportunity to meet with you and give you a tour of our properties in person or virtually. We accommodate investors seeking to invest in pooled vehicles of properties and on a deal-by-deal basis.
To learn more about Republic Investment Group’s #non-leveraged approach to real estate investing, schedule a consultation.
Thank you for your time and consideration. We look forward to working with you.
Sincerely,
John Mathew
Founder, Chief Executive Officer & Chief Investment Officer
info@RepublicInvest.com
