Just the PeaksThis newsletter at a glance
|
In times of global conflict and uncertainty, it’s smart to stay informed
Everest brings you the latest industry opinions on Russia and Ukraine
Benjamin Franklin once said, “An investment in knowledge pays the best interest.”
With this old adage in mind, we can’t help but think of mounting tensions across the globe.
As Russia continues to wage war against neighboring Ukraine, investors have struggled to accurately assess current and future market conditions. This uncertainty extends beyond the financial sector to include commercial holdings.
People who own and operate apartment buildings, multifamily housing, office buildings, and retail complexes are concerned about the impact the crisis may have, if at all, on their investments. It’s a complicated subject, but the good news is—things are looking up.
Could the crisis go commercial?
No doubt, the Russia-Ukraine War is bound to have a profound ripple effect in America.
For weeks, people have been talking about increasing inflation, soaring gas prices, and supply chain difficulties. And while many of these concerns may be affected by Western sanctions against Russia, the reality is, most were brewing long before the war.
On the bright side, commercial real estate experts seem to agree that global commercial properties are relatively safe.
“The immediate and direct impact from these measures will likely be negligible,” writes Tom Leahy of Real Capital Analytics. “Russian capital has very little presence in global commercial property markets. Additionally, Ukraine’s institutional property market is small and domestic, therefore, international exposure is minimal.”
Leahy and other analysts assert that the CRE impact will be mostly indirect. Like everyone else living and working in America, investors will face financial pressures related to the following:
-
Increased cost of goods
Not only does this put strain on renters, but property owners must spend more money on materials needed for maintenance, repairs, renovations, and new construction. The upside? If your real estate is secured with a long-term fixed-rate loan, your payments will always remain stable.
-
Higher energy prices
Sky-high costs for crude oil and natural gas greatly affect the operating expenses for buildings, especially those lacking energy-efficient upgrades. Utility bills have been soaring, but luckily, we’re past peak heating season.
-
Out-of-control inflation
As the costs for goods and labor continue to rise, new construction projects will wane, leading to higher rents but fewer opportunities for portfolio expansion. Still, high inflation benefits landlords, who can up the rent as tenant incomes rise.
Peace through prosperity
Commodities may be heating up, but thankfully, this shouldn’t affect property values.
NYU Professor Constantine Korologos notes, “Real estate assets aren’t subject to the same volatility, the jumpiness, movement in the market that equity markets are.”
While the world anxiously awaits a resolution to the Russia-Ukraine clash, we turn to some of today’s greatest voices of encouragement. If you’re financially prepared to weather the storm, this period of economic strife could be a blessing in disguise.
Words of Wisdom on the Russia-Ukraine War
from the commercial real estate community
From Kevin Vandenboss, Yahoo! News, March 23, 2022:
“All investments carry a level of risk that can be tied to movements in the market. However, the commercial real estate market is much less volatile, and fluctuations have historically been much more subtle than with the stock market.”
From Mark Faris and Holly Dutton, Commercial Property Executive, February 28, 2022:
“Real estate is a long-term investment, and a secure income stream from core assets can act as a buffer against volatility in other asset classes and outside the world.”
From Katie Murar, Bisnow, March 17, 2022:
“As the Russia-Ukraine War creates uncertainly in the market and pulls down the stock market at large, analysts predict one sector to buck the trends and see gains. Apartment real estate investment trusts will outpace the rest of the market as a result of high demand and low inventory.”
From Dees Stribling, Bisnow National, March 21, 2022:
“Barring catastrophic global escalation, the war in Ukraine poses few risks to U.S. commercial real estate and might even spur investors to turn to real estate assets […] Historically, such periods of uncertainty reinforce the investment advantages of real estate.”
From John Chang, GlobeSt.com, March 17, 2022:
“For a more defensive strategy, single tenant net lease retail makes a lot of sense […] Another option is self-storage. It performed well through the last two recessions and gained ground during the growth cycle. Multifamily and industrial also remain good investment options.”
From J. David Chapman, The Journal Record, March 10, 2022:
“I think we have to take inventory of where we were before the Russian-Ukraine conflict. Despite concerns over a prolonged downturn in the U.S. commercial real estate market in 2021, the opposite was true. Demand for space increased, with the sole exception being the office sector. International investors sat up and took notice, increasing their capital flow into U.S. properties.”
Everest says: your investment is safe with us