Certain business and economic conditions influence our business model at Eidi Properties, therefore we keep a close eye on key variables. Although there have been some economic scares recently, there are many reasons for aspects of the economy to be optimistic. For borrowers, the recent economic projections are hopeful. After a year that included several interest rate hikes, the Federal Reserve Board, led by Jerome Powell, indicated that the stock market’s performance will likely lead to the slowing of rate changes. He added that there could even be rate reductions in 2020 based on solid employment numbers, wage gains, T-bill yields and confidence in corresponding inflation.
This is good news for several sectors of the economy, particularly in the wake of the recent bloodbath and chaotic volatility that the stock market has experienced. Not only are stocks down in their year over year earnings, but the VIX (Volatility Index) which traders rely on, has been so volatile (typically a welcome condition for traders) that traders have been reluctant to enter the market. However, when the VIX has stabilized, this creates a buying opportunity for those positioned well from a capital standpoint.
Commodities have been particularly vulnerable due to trade uncertainty, Brexit, and other potential European market adjustments. These indicators point to a financial migration towards more stable investments like real estate and commercial real estate. People are more confident in investments that can be physically experienced, knowing that a market plunge won’t make their investment vanish entirely.
The jitters on Wall Street don’t seem to apply to main street regarding commercial real estate. There is a strong sense that commercial assets will appreciate with the additional benefit of income and expense offsets. The stabilizing of interest rates and the projection of lower rates combine with full employment to create the conditions where commercial real estate is particularly attractive. More people earning more money increases the demand in the economy, which helps to keep stores open and shopping centers bustling.
Whether you own a store or lease out a building, having commercial real estate functions much like an annuity by providing residual income as well as future value due to appreciation. With the additional advantage of having a tangible asset, commercial real estate alleviates many of the investment concerns of undulating markets, particularly in today’s economy.