We are heading into another strong and active year, according to Jeff Rinkov, CEO and president at Lee & Associates. The activity will make landlords the winners in the coming year, with more cap rate compression and higher prices, Rinkov predicts. We sat down with him for an exclusive interview to get his insight into the coming year.
GlobeSt.com: What will people be talking about at the end of 2018?
Jeff Rinkov: I think the biggest surprise is how strong the market is going to be next year. People have been waiting for some weakness or some negative impact, but I think people are going to be surprised at how strong the market really is. I also think that tax reform is going to get passed, and that is going to be encouraging for corporate America, which still drives a lot of employment. Interest rates are not going to be a big factor. You are going to continue to see rising rents, rising values and cap rate compression, even more so than we have seen.
GlobeSt.com: That is surprising. Is there room for cap rates to compress?
Rinkov: I don't believe there was room for the cap rate compression that we have now. I think that people will buy a zero-coupon kind of deal when they are buying down value. If you can buy physical value, people will buy that in the face of smaller cash returns. I think that we are seeing that, and I think that people are being very strategic about their acquisitions from a more fundamental standpoint. It is about strategic location, fundamental real estate and the future of the property. We have seen people be very aggressive where there are very small returns. We are in an environment where there is enough capital to backfill where lenders have resisted from a loan-to-value standpoint.
GlobeSt.com: Multifamily has continued to dominate the market, but if you look at some third quarter reports, there has been some slowed growth this year. Is that concerning going into next year?
Rinkov: If you saw an expansion of those fundamentals, there would be some concern. I don't think that the construction of new product is outpacing demand, but I do think that it is outpacing absorption. Right now, it is a timing issue. A year from now, if we start to see vacancy rates continue to go up or we are not seeing strengthening absorption and we are continuing to build, then we have a problem.
GlobeSt.com: Who will be the winners of 2018?
Rinkov: Landlords continue to be winners next year. That doesn't meant that tenants are losers, but they need to be careful. I think that landlords are winners based on renewal activity, low vacancy and only marginally higher interest rates. I also think that development becomes very difficult because of regulation and higher land prices. The biggest challenge with regulation is time to market. I think there is concern about the time to entitle a meaningful project that goes from 18 to 36 months. We don't know what market we are building into.
GlobeSt.com: What is your intermediate-term outlook?
Rinkov: I don't know what inning we are in anymore. I don't know today. I think we are in the heart of a really strong market. I think that the next two to three year period shows relative strength and economic growth. I think we see rent growth, although it may be more subdued.
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Kelsi Maree Borland
