Alternative Investments and CRE 2025 Ground Hog Day

The tra­di­tion­al hol­i­day known as Ground Hog Day (cel­e­brat­ed Feb 2 annu­al­ly) is more of a folk lore event rather than an actu­al weath­er pre­dic­tion. As a side note, in case you missed Punx­sutawney Phil this year the ground­hog (actu­al­ly a wood­chuck) saw his shad­ow and pre­dict­ed 6 more weeks of win­ter. 

Feb­ru­ary 7, 2025

By Al DiNi­co­la, AIF®
DST 1031 Spe­cial­ist
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC

Phil, over the years, is right 40% of the time. Com­mer­cial Real Estate fore­cast­ing may have a bet­ter per­cent­age in pre­dic­tions.

Dur­ing the month of Jan­u­ary and spilling into Feb­ru­ary com­mer­cial real estate prac­ti­tion­ers, finan­cial advi­sors and real estate investors attend mul­ti­ple Webi­na­rs review­ing 2024 and look­ing toward pre­dic­tions for 2025. Is there a real estate ground hog day?

You may remem­ber the 1993 movie called Ground­hog Day. In this com­i­cal movie a man (played by actor Bill Mur­ray) relives the same day over and over again. Because of the movie, the phrase “Ground­hog Day” is now often used to describe repet­i­tive, monot­o­nous sit­u­a­tions.

“Real Estate Ground­hog Day” is not a wide­ly rec­og­nized term, but it could refer to the repet­i­tive cycle often expe­ri­enced in the real estate indus­try. This could include:

• Mar­ket Cycles – The recur­ring pat­terns of boom and bust in real estate mar­kets, where prop­er­ty val­ues rise and fall in pre­dictable cycles.
• Buy­er’s and Sell­er’s Behav­ior – The repet­i­tive nature of buy­er hes­i­ta­tions, sell­er expec­ta­tions, and nego­ti­a­tion tac­tics that agents deal with reg­u­lar­ly.
• Agent Rou­tine – Real estate pro­fes­sion­als often feel like they are reliv­ing the same tasks dai­ly, such as prospect­ing, show­ing homes, nego­ti­at­ing deals, and han­dling paper­work.
• Sea­son­al Trends – The real estate mar­ket tends to fol­low sea­son­al pat­terns, with increased activ­i­ty in spring and sum­mer and slow­downs in fall and win­ter.

2025 Com­mer­cial Real Estate and Alter­na­tive Real Estate Out­look

For invest­ment advi­sors and rep­re­sen­ta­tives we do expe­ri­ence cycles and com­pare and con­trast past trends to estab­lish some type of pred­ica­tive future.  Many look to cause and effect in the mar­kets.

Many of the same take­aways in the com­mer­cial real estate analy­sis can trans­fer to the Delaware Statu­to­ry Trust (DST) invest­ment oppor­tu­ni­ties, Oppor­tu­ni­ty Zones as well as the direc­tion of pri­vate equi­ty into real estate devel­op­ment. Pri­vate equi­ty as well as indi­vid­ual investors are mov­ing into the alter­na­tive real estate space for a vari­ety of rea­son.

Many of the ses­sions we have attend­ed pro­vide the same key take­aways:

• With the sec­ond largest draw­down of CRE val­u­a­tions on record, a com­pelling entry point is on full dis­play.
• Loom­ing debt matu­ri­ties and stressed cap­i­tal struc­tures will sup­port sig­nif­i­cant oppor­tu­ni­ty for well-cap­i­tal­ized buy­ers.
• Slow­er eco­nom­ic growth will dri­ve more focus on the inter­sec­tion between real estate and demo­graph­ic trends.
• Hous­ing afford­abil­i­ty, migra­tion pat­terns, and immi­gra­tion pol­i­cy will be crit­i­cal trends to con­sid­er when mak­ing invest­ment deci­sions.
• Con­struc­tion starts are down sig­nif­i­cant­ly across com­mer­cial real estate, set­ting up for strong fun­da­men­tals.

Wall of Debt Matu­ri­ties 

The mas­sive trans­ac­tion vol­ume from 2021 to 2023 cre­at­ed a great deal of debt to go with it. Much of the debt orig­i­nat­ed between 2019 and 2022 will be com­ing due in the next 12 to 24 months.

Afford­abil­i­ty

Hous­ing afford­abil­i­ty will dri­ve res­i­den­tial rental demand. Despite an increase in mort­gage rates, the Case-Shiller Home Price Index is at an all-time high. This is dri­ven by the con­tin­ued demo­graph­ic demand for hous­ing, cou­pled with an extreme­ly low sup­ply of exist­ing homes for sale.

Migra­tion Pat­terns

Both domes­tic pop­u­la­tion migra­tion between states and immi­gra­tion from abroad will have an out­sized impact on com­mer­cial real estate demand going for­ward, espe­cial­ly as organ­ic growth from births con­tin­ues to wane. It is esti­mat­ed that 75 per­cent of pop­u­la­tion growth in the next decade will come from immi­gra­tion. The pro­file of poten­tial renters will also vary sig­nif­i­cant­ly depend­ing on the migra­tion tim­ing a mar­ket expe­ri­ences. Inter­na­tion­al migra­tion is con­cen­trat­ed on a few key states, with Flori­da, Cal­i­for­nia, and Texas receiv­ing the largest share.

Sup­ply and Demand Dynam­ics Across High-Con­vic­tion Sec­tors.

The demo­graph­ic back­drop will dri­ve supply/demand dynam­ics for com­mer­cial real estate through­out the next decade. Giv­en the slow-growth macro­eco­nom­ic envi­ron­ment, the strongest real estate sec­tors will be those whose demand is teth­ered to life events rather than eco­nom­ic growth. Those same real estate sec­tors also ben­e­fit­ed from the low inter­est rates of 2020 to 2022, see­ing a boom in con­struc­tion starts dur­ing that time peri­od.

Inter­est rates seem to be a top­ic of dis­cus­sion by many and look towards a trend low­er.  How­ev­er the mar­ket with make a move with or with­out sig­nif­i­cant changes. Sell­er of active­ly man­aged real estate will seek to move into pas­sive man­age­ment.  Investors with cap­i­tal gains will con­tin­ue to seek tax defer­ral through 1031 tax deferred exchanges (some uti­liz­ing DST for pas­sive income and tax defer­ral). Oth­er investors with cap­i­tal gains may seek to invest into Oppor­tu­ni­ty Zones for long term com­pound­ing poten­tial returns.

Over the next few weeks, we will pro­vide a review into spe­cif­ic asset class­es and the pro­jec­tion.  Will we repeat the same results as 2024, or will this year see appre­cia­ble improve­ments in the mar­kets?

We want to thank many of the spon­sors who have pro­vid­ed 2024 and 2025 analy­sis includ­ing Inland-Invest­ments, Cap­i­tal Square, Can­tor Fitzger­ald, Brook­field, Star­wood and oth­ers.

NAMCOA® is a SEC reg­is­tered invest­ment advi­so­ry firm that pro­vides com­pre­hen­sive port­fo­lio man­age­ment, finan­cial plan­ning, and fidu­cia­ry deci­sion-mak­ing ser­vices on behalf of retire­ment plan spon­sors. Our Dif­fer­ence is sum­ma­rized by our fidu­cia­ry approach which enables us to bet­ter meet port­fo­lio and retire­ment plan objec­tives, result­ing in stronger risk adjust­ed returns for investors and peace of mind for Clients. We also focus on alter­na­tive real estate invest­ment. Many real estate investors are seek­ing tax deferred solu­tions uti­liz­ing §1031 exchanges or Oppor­tu­ni­ty Zones..

DSTs are not for all investors.  The acqui­si­tion of a DST is for accred­it­ed investors only.  Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your 1031 Exchange and suit­ed for your invest­ment future. For more infor­ma­tion on how to prop­er­ly set up an IRC 1031Tax Deferred Exchange or if you are an accred­it­ed investor and would like addi­tion­al infor­ma­tion on a DST con­tact Al DiNi­co­la at 239–691-8098 or email adinicola@namcoa.com.

This is not an offer to pur­chase or solic­i­ta­tion to pur­chase any secu­ri­ty, as such be made only through an offer­ing mem­o­ran­dum or prospec­tus.  Invest­ing in secu­ri­ties, real estate, or any invest­ment, whether pub­lic or pri­vate, involves risk, includ­ing but not lim­it­ed to the poten­tial of los­ing some or all of your invest­ment dol­lars when you invest in secu­ri­ties. You should review any planned finan­cial trans­ac­tions that may have tax or legal impli­ca­tions with your per­son­al tax or legal advi­sor.   NAMCOA, LLC is a Reg­is­tered Invest­ment Advi­sor, reg­u­lat­ed by SEC (Secu­ri­ties and Exchange Com­mis­sion). Our cor­po­rate office is locat­ed at 999 Van­der­bilt Beach Road, Suite 200, Naples Flori­da 34108. Secu­ri­ties Offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC. 8215 SW Tualatin- Sher­wood Rd, Suite 200, Tualatin, OR 97062.  MSC-BD, LLC and NAMCOA are inde­pen­dent­ly owned and are not affil­i­at­ed.

Thank you.