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Earlier this week I talked about lessons learned, related to Exit Strategies, from the 2008-2009 crash. You can read that HERE. So what else can we take from 2008-2009?
For one, don't chase deals. With the recent market conditions what they are one would think that prices would be dropping. However, the Real Estate Market remains as hot as ever in the US. Especially in the SouthEastern US markets. Foreign markets are starting to show signs of weakening but not here in the States. Back in 2007 people we chasing deals like crazy. Prices were sky high and nobody thought they would be coming down. To be fair, the casual investor could not have seen the market conditions that the lenders were creating with the sub-prime products. In 2020, the casual investor can see trends and signs.
Before we go too far let me state, first, that no, I do not think 2020 and 2021 will end up like 2008 and 2009 for the RE market. But I do believe the conditions are right for a large number of defaults and that people who are chasing high priced deals, in June and July 2020, are getting in at the wrong time. The economy is not solid and the market conditions seem to indicate that defaults are going to occur.
If you pay attention to the banks and lending institutions they are preparing for this. In the last couple of weeks multiple financial institutions are already preparing for later 2020 and 2021. They see defaults coming and are taking loses, today, to set aside cash to prepare for those defaults.
What does this mean for the investors and syndicators? If 2008 and 2009 taught you anything...Be Patient!! Now is not the time to be chasing deals or trying bold strategies to make a deal work out. Someone once said be a buyer when others are selling and be a seller when others are buying. This is that in between time when you should be transitioning from one to the other and putting yourself in a position to buy when the time becomes right.
So what do you do now? Focus on getting yourself in a good cash position with adequate reserves and preparing for a potential decrease in the rents you'll be able to charge. Prepare yourself for lower occupancy rates. Tenants will default. I am not claiming to know at what rate this will happen but it will occur. If you can exit lower performing positions/properties take the opportunity to do so. Cash will be king! But don't forget to refi if you can. Take advantage of today's low rates while lenders are still lending.
Speaking of cash...also use this time to raise capital from investors. Deals will be coming...very good deals! Your investors will be very happy with you when you're able to capitalize on your good position to grab deals when they become available. Spend time raising and don't forget to keep those lender relationships going. This is a great time to make sure you have a solid network of lenders. When the defaults do happen those tight lender relationships will be invaluable.
The market adjustments are coming. The signs are there. Spend some time, now, doing the things you need to do to put yourself in a solid position for when the adjustments come. In 2008-2009 I was on the wrong side. That won't happen again. A little patience and due diligence, today, will make tomorrow very bright!!