The stock market correction in January was the first of what some market experts believe may be a volatile year for the stock market—but will that volatility translate to the real estate market? Shahin Yazdi, principal and managing director at George Smith Partners says that the volatility in the stock market may actually create buying opportunities for investors and owner/users. We sat down with Yazdi for an exclusive interview to talk about the stock market correction, how it might impact CRE markets and how they are advising their clients as a result.
GlobeSt.com: Were you surprised to see the stock market correction at the beginning of this year?
Shahin Yazdi: This year's correction was not surprising based on the double-digit growth we saw in 2017. When rates and bonds begin to go up dramatically, we know that the stock market will react. Typically, it's a question of when volatility will occur as opposed to if it will occur.
Our primary reaction continues to be a proactive approach to supporting our Clients. Because our firm has weathered several cycles, we know what to look for, and we keep our finger on the pulse of even the smallest market shifts. When we can, we use those to our Clients' advantage. When the pendulum swings the other way, we work with our network of lenders to identify and facilitate creative solutions that can help our Clients continue to meet their goals.
GlobeSt.com: Why do you think we have seen some stock market volatility this year?
Yazdi: This year's stock market volatility has been a function of rates increasing, predictions that the Fed will continue to increase rates, and new tariffs proposed by President Trump.
GlobeSt.com: How, if at all, will this volatility affect the CRE markets?
Yazdi: Market volatility could create buying opportunities, which would be a positive impact for investors and owner-users. When buying properties at low cap rates, as rates go up, it becomes harder to meet DCR requirements set by lenders, resulting in lower LTV ratios. As those ratios tighten, we are likely to see an adjustment in pricing. Further, as the market cycle continues to mature, both buyers and sellers will begin to adjust to higher borrowing rates than those they've become accustomed to in the past several years.
GlobeSt.com: What does this volatility say about the overall strength of the economy?
Yazdi: We are optimistic that 2018 will ultimately be a year of positive growth. Compared to other countries, the United States is a safe and attractive foreign direct investment, both in real estate and in the stock market. There is still a tremendous amount of foreign capital being invested in the U.S. on a daily basis.
GlobeSt.com: Has this volatility encouraged any adjustments to your acquisition strategy or business strategy this year?
Yazdi: As rates increase, we are beginning to see a rise in refinancing. This is something we've been telling our Clients for several months. Fixed-rate financing remains extremely low, and many borrowers who have waited to see what will happen are now rushing to refinance and lock-in today's rates.
GlobeSt.com: Do you think now is still the right time to invest in real estate?
Yazdi: Yes. Commercial real estate continues to offer a strong investment opportunity that differs significantly from stock investments. Many product sectors continue to offer tremendous value-add potential, including industrial, for-sale housing, and value-add retail. In fact, retail properties are some of the most interesting at the moment. While many are running from retail in fear of e-commerce, the fact is, a savvy owner/operator could be creating substantial value in retail product as CAP rates increase. As the market continues its progression, those who have invested in value plays and financed their properties wisely will fare well in the years to come.
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Kelsi Maree Borland
