New York is not dead yet for real estate. There are a lot of negatives for real estate in NYC – as per my prior article – but people will be surprised how well real estate continues to do in The Big Apple. This is for the simple reason that (talented) people want to be here more than anything because other talented people are here. English is the spoken language, and NYC is still the world center of commerce and becoming the world center for many different things (including technology, education, and maybe soon life sciences). Even if NYC has some troubles for the real estate industry taking it on the chin, it is still a much better place for people and capital than anywhere else.
Singapore will take the financial crown from Hong Kong. Forever there has been a triumvirate (a great word) of financial capitals of the world, namely, New York City, London, and Hong Kong. London will do just fine and thrive, as per my predictions since Brexit started three years ago; however, I think that Singapore is going to steal the crown from Hong Kong. The reasons are simple; namely, that Singapore has almost everything Hong Kong has but without the omnipresence of China hanging over it. Plus, anecdotally, English is spoken even more in Singapore than Hong Kong. Singapore certainly “feels” like a lot safer place to put capital than wondering whether any day President Xi Jinping is going to send in the troops to quell an uprising – and in 2047, isn’t it game over anyway?
Real Estate Technology is Just Getting Started. I predict that the disruption (I still hate that word) that is going on in the real estate world will increase significantly. Once the genie gets out of the bottle, you can’t put it back in. Everyone will need to contend with all of this “stuff.” Real estate as a service – hotelization – new words (not yet in the Oxford Dictionary) and everything that is changing. Having said that, I predict this gold rush will end the same as all the others before them, which means that the ones who will make money are those selling picks and shovels and a few parties that hit it big. Most of the startups will no doubt go bankrupt or be picked up by bigger players. Meanwhile, the game is afoot!
Real Estate Being a Separate Asset Class is Going to Continue to Have a Major Impact. You may recall that now about three years ago, real estate – quietly – became a separate asset class, as respected as bonds and stocks. If you recall, real estate used to be part of “alternatives” but now stands on its own. This means that more and more investors will be diversifying their portfolios into real estate – as dutifully instructed by their financial advisors, who now say, “you know, roughly 5% to 10% of your portfolio should really be in real estate.” And what do they mean by real estate? Well, that covers a lot of territory, but mostly what they mean is (probably going to be) cash-flowing real estate. So, the surge we have already seen – with things like Blackstone’s public non-traded REIT raising I think close to $1B a month – will continue and grow. You will see a lot of parties in the real estate world realizing they cannot compete with this “diversification money” and instead will try to harvest it. See my article now three years old on exactly this subject.
Cash Flowing Real Estate Will Keep Rising in Price. Along the lines of the foregoing prediction, cash flowing real estate will keep being bid up higher and higher. I don’t have the ability to tell a good deal from a bad deal – I remain deal-agnostic; however, my sense is pricing will, at some point, become out of control here. Consider interest rates being negative worldwide and very low in the US and real estate yielding more and think of where will yield-starved investors increasingly put their cash, until is it too late, and then...
“Retail” is deader than a doornail – but Retail 2.0 Will Surge Greatly. Retail used to mean – and to some still means – being the middleman between a party who has a product to sell and the public that wishes to buy it. The middleman has a thing called a “store” in which the public comes in to see the product, and if they like it, then they buy it. That is dead – other than just a few super-low cost players like Walmart and so-called category killers. But out of the ashes – rising like a Phoenix – will be parties that rethink their businesses into purveyors and distributors of branded products that are ensconced within – and protected by – a Power Niche (which could be a brand or a creative industry-related targeted product). These parties – which I would call “Retail 2.0” – will thrive because they will not be at the mercy of the Amazons and other parties that one way or another destroy the middleman. More on this will
come in another article that I will write soon, which will be entitled Amazon vs. The Power Niche.
Rent Control for Multi-Family Will Roll Onwards in Blue States but not in Red States. I am not political in my writings. This is just a prediction, as I think some people believe in their hearts that the government should have a major role in making sure everyone gets housing. And others believe that rent control is the death knell of capital flowing towards housing. I think these views largely align with party lines; hence, my prediction here.
It Will Become Harder and Harder to “Find” deals. I wrote this in an article six months ago, and I think I was right. My point was that with information flowing so ubiquitously, you couldn’t look at what everyone else is looking at and expect to outperform on a long-term basis. Instead, one way or another, you have to “create” a deal or “value” if you want to outperform. Indeed, I predict that over time fewer and fewer parties will even “look” for deals any more. Those who hire – and those who run a real estate business – or run a group within a real estate business – will increasingly realize this and hire and promote accordingly.
For us Lawyers – We Will Need to Add More Value Than “Just” High-Quality Legal Work. Okay – yes – this is self-serving, but that doesn’t make it untrue. Lawyers that “just” do legal work, I believe, will recede to become the law firms of the “past.” Clients will recognize more and more that the – new and improved – role of the lawyer is to learn the industry and business that the client operates in and to create opportunities for the client in that industry. The simplest example is just “knowing what is market.” A moderately higher level is being able to connect parties with each other within an industry. And, it can elevate still higher to the level of creating ideas and intellectual capital for clients. In this vein, I am proud of our firm’s mission statement, which has resonated greatly with our clients, for whom we look out for at every level:
To Help Our Clients Grow Their Businesses
Opportunity Zones Will Get Even Hotter. They have been heating up all year; however, the final set of regulations pretty much resolved just about every single question in favor of the investors/sponsors (Jessica Millett’s latest road map). Will there be a tidal wave of investment? I don’t know if it will be a tidal wave; however, our Opportunity Zone HUB has been seeing more interest from investors every week. It is almost at equilibrium between parties reaching out to us for deals and parties reaching out to us for investors. I predict there will be (a lot) more deals done here in 2020. Yes, of course, people shouldn’t “do deals for tax reasons,” and some foolish deals will undoubtedly happen; however, as people assess the risk/reward of transactions, a deal in an Opportunity Zone now has more upside due to the tax benefits attendant thereon.
This is a Wild One. Okay I know this one might get a lot of raised eyebrows, and it is not really in the real estate industry, but I predict that the presidential election will be the following tickets:
Bloomberg/Kobuchar Versus Trump/Rubio
You heard it here first.
Best wishes to everyone for an amazing 2020. May it be the best one you have ever had and the worst one you ever will have.
Bruce M. Stachenfeld a/k/a The Real Estate Philosopher