Commercial Real Estate Is In Trouble Because Of The Fed

Investment guru Grant Cardone has taken a massive attack on Jerome Powell, chair of the Federal Reserve — holding Powell responsible for the countless issues plaguing this U.S. commercial real estate market.

Cardone, also known as the moniker Uncle G, has slammed the Fed’s aggressive sequence of rate increases since March 2022, causing “unnecessary” suffering in the business.

“Jerome Powell has done a lot of damage to the real estate industry and residential homes, to hotels as well as multifamily, and even to the office space,” Cardone told Moneywise in an interview.

Economic challenges are transforming the previously safe zone for real estate investment into a more risky investment. Still, Cardone believes that there are opportunities for investors to “make significant money.” This is the steps to follow.

Rate Hikes Were An “Overaction” of the Fed

According to Cardone, commercial real estate was historically a “very solid” investment for investors. In the last 25 years, the sector has performed better than the S&P 500, with an average annual return of 10.3 percent, according to Forbes.

Cardone believes there’s been just a handful of occasions “over many years” in which stability fluctuated, including during the Great Inflation of the 1970s and the collapse of the dotcom bubble in 2000 and the global financial crisis, and “this time right now.”

“They all share one thing they all have in common … that is the credit market,” he says. “Real real estate is heavily connected to the extent that it is possible to borrow money [and the banking system appears extremely fragile at the moment.”

In March 2022, Fed increased the interest rate 10 times in a row, totaling up to 5 percentage points, to reduce the highest U.S. inflation in four years.

Experts think this is a problem for the industry as it has made it difficult for borrowers to borrow or refinance commercial real estate – which has led to a dramatic reduction in demand for homes.

Uncle G claims that the “unprecedented increases of interest rates” are a perfect instance of “overaction by the Fed in an attempt to keep this inflation thing under control.”

He believes that the federal economy’s policies of the federal government have brought additional harm to markets struggling to overcome trends driven by pandemics. Remote work, for instance, has left office spaces empty. The rapid rise of online shopping makes retailers scrambling for the best way to compete; hotels have not yet returned to pre-COVID occupancy levels.

Even with these challenges, however, an area of real estate still receives Cardone’s vote of trust.

Watch it now: Full interview: Grant Cardone weighs in on the condition of commercial property in the present and gives advice on how you can find the perfect real estate investment.

A Safe Bet In Commercial Real Estate?

Even though Cardone states that the market for commercial real estate is “fragile at the moment,” he believes a “real estate correction is complete,” which is buyers with a fantastic opportunity.

“This is the time,” he says. “These are the chances people could earn significant money through real property.”

Cardone himself has made millions through investing in multi-family real property. The real estate portfolio of Cardone Capital includes 11,903 apartment units spread across 36 multifamily homes, estimated at four billion dollars.

Being a long-term investor with an optimistic outlook in this market, Cardone has weathered temporary disruptions within the commercial real estate market.

“I make investments that last for a long time,” he says. “When I invest in something that’s 2023, I’m considering its worth in 2033 as well as 2043 or 2053. I wouldn’t be concerned if I did not ever sell any of this property. I’m looking for the cash flow and the tax write-offs.

“It’s an easy company. It’s not difficult. It’s been generating huge sums of money for thousands of years. It can’t be replaced through cryptocurrencies or even changes in government policies or technological advances.”

The reason why multifamily properties are worth real estate is pretty straightforward. According to Cardone: “People will always require a home.”

“Apartments are an advantage over office spaces, where you have to run a business, and it’s important to have a healthy economy,” Cardone adds. “The hotel business is dependent on discretionary income. Retail relies on the people who get here to shop and trade. And I run the possibility of Amazon changing the market.

“But apartment buildings — 1,000 square feet for $2000 a month, and that have a great theatre, a pool, and security — when they’re a good property, there will be value to it.”

If you’d like to follow the investment path of Cardone, here are a few ways to take part in the investment action.

Can You Make Money From Multifamily Real Estate?

Nowadays, there is no need to purchase a multifamily home to avoid all the headaches associated with being an owner to buy real properties.

It is better to put your money into a home-based REIT, also known as a real estate investment trust (REIT), which are public-traded corporations that collect rent from tenants and distribute it to shareholders via regular dividends.

It is also possible to consider crowdfunding platforms, the method favored by Cardone and others that permit ordinary investors to pool money for the purchase of properties (or an interest in properties) together.

Through these simple-to-use platforms that are usually backed by an expert team to help you create the perfect portfolio, it is possible to look through curated deals or invest in funds that are invested in diverse real estate portfolios to increase your profits and keep fees to a minimum.

Most important in the eyes of Uncle G is backing property which produces cash flow that you could increase and invest over the course of time.

“Armageddon Is Coming To Real Estate Industry,” Says Oppenheim

According to the top agent Jason Oppenheim, the real estate market will likely be shattered.

Oppenheim is the leader of an impressive team of agents featured on the Netflix ( NFLX) reality show “Selling Sunset” He recently had a conversation with Yahoo Finance about the state of the U.S. real estate market. The conversation was a wide-ranging one. Oppenheim warned that the structure of commissions in the real estate industry will likely change soon.

“To clarify the issue of the real estate industry, there are federal regulators as well as a handful of lawsuits that are in the pipe that in the most extremes could result in attack on realtors,” he said. “You could see the regulators dissociate from the commission structure so that the seller will be essentially making payments for buyers’ as well as agents’ commissions.”

In the year 2019, two homeowners brought a case, Sitzer et al. v. National Association of Realtors (NAR)(see below)), asserting that a number of NAR regulations violate their rights under the Sherman Antitrust Act of 1890. This law is a law that prohibits actions that limit the interstate flow of commerce as well as competition.

A portion of the NAR guidelines in question stipulates that listing brokers must offer buyers brokers a fee for listing a property. The suit claims that the practice increases sellers’ costs, and consequently, it is anti-competitive.

In the past, there were two people to market houses, which included a buyer’s representative and the seller’s agent. But, if NAR cannot prevail and is dismissed, the real estate business will effectively have agents for buyers removed from the process. The amount of real estate agents across the U.S. (there are 1.5 million at present, according to NAR) is likely to fall drastically.

“You might see hundreds of hundreds of thousands of property professionals leaving their jobs while major brokerages shut down,” said Oppenheim. “We’re close to the Armageddon nobody is talking about.”

There’s hope of a deal with regulators or an appeals process. However, likely, the market for real estate agents will soon be significantly overhauled, according to Oppenheim. Oppenheim said that we may observe the U.S. ultimately turn towards an approach with lower overall commissions, as is the situation in Australia currently.

“I believe there are way numerous real estate agents in the first place, and I don’t believe that’s part of the issue,” He stated. “I believe the issue is that if we eliminate the commission for buyers’ agents, you’ll find agents representing the buyer in 90 percent of all transactions. This is known as dual agency,” claimed Oppenheim. “I believe this is not healthy for consumers, as I believe the consumer ought to have their legal representation. This differs from going to court with a lawyer representing both sides.”

It could result in a scenario in which the agent has an obligation to be a fiduciary for either the buyer or seller on the other, Oppenheim said.

In 2022 a federal judge in 2022 has ruled that an unregulated private estate listing company could be able to sue NAR for anti-competitive practices. In the last month, it was decided that the U.S. Supreme Court denied the attempt of the trade group to appeal the decision.

“It’s an issue that’s not spoken about as much, and it’s possible to be difficult to discuss, possibly more so by 2024. But it’s going to happen,” Oppenheim said.