A Review of 2022 and
My Best Guess for 2023

By: Bill Shopoff, President and CEO, Shopoff Realty Investments

Another fascinating year is coming to an end and it’s time to reflect on what occurred, what we thought would occur, and what we believe may occur in 2023 and beyond.  The exercise of reflecting on what has transpired, while concurrently forecasting the future, gets more interesting with each passing year.  The more experience I have, the more I realize how much I don’t know, even despite the decades of knowledge I have gathered.

Let me start with what worked in 2022. We had 36 successful dispositions and financings during the year totaling over $160 million.  Additionally, we have 5 transactions scheduled to conclude by the end of the year, totaling an additional $385 million.  We also acquired almost $200 million in new properties, with another $200 million in due diligence or moving toward closing.

Another significant milestone for the year was the groundbreaking for Dream Las Vegas, hotel and casino, which is slated to open in early 2025. The $580 million project will contain 531 rooms, one of the largest electronic billboards in Las Vegas at 169 feet tall, and it is in a Qualified Opportunity Zone on the world-famous Las Vegas strip.

We expect 2023 to be extremely active with our forecast of over 50 dispositions and financings expected to total over $1.1 billion. This is anticipated to bring several of our programs to conclusion in the coming year.

Now I’d like to step back and share my thoughts on the headline events of 2022. At the top of the list is the Russian invasion of Ukraine.  For the first time in over 70 years, we are experiencing a war in Europe and its impact has spilled over into the global economy.  This has affected energy prices, further exacerbated supply chain disruptions, and added to food shortages throughout the globe.

In addition to the war, there have been significant impacts to inflation from Covid’s impact on the supply chain, as well as the significant amount of government dollars spent to avert an economic disaster.  These issues will ultimately resolve themselves but are contributing to our current high inflation.

We are feeling the impact of these issues on the home front in the form of their contribution to record high inflation after decades of it being dormant.  This has led to aggressive behavior on the part of the federal reserve in rapidly hiking its benchmark rate.  It has also put financial markets into shock with global stock indexes down for the year, while mortgage rates have essentially doubled during the year.

As a result, the robust housing market has slowed dramatically.  It remains much healthier than the correction we saw during the global financial crisis, however, there is likely to be some price corrections coming in 2023. The commercial markets have stalled significantly in the latter half of 2022, and I expect that slow down to continue into early 2023.  This will likely result in buying opportunities for the savvy investor, and we expect be one of the groups participating in these opportunistic purchases while the market is in flux, adding value to our portfolio.

There are several other factors we are dealing with as we reshape our portfolios in response to changing conditions.  E-commerce will continue to grow, adding to the demand for new industrial space. I expect this demand to be strong for the next decade, although with all markets, there will be peaks and valleys along the way. We will focus on great locations with long term demand drivers rather than trendy opportunities.

I also expect continued impact of work from home/work from anywhere policies. Although many businesses are returning to an in-office experience, there are several others who are continuing the experiment of remote working.  This will clearly negatively impact the value of office buildings in the coming years.  While we don’t think office as an asset class is dead, we think much of the existing stock is functional and financially obsolete.  We, as are other developers, will be focused on solving the riddle of how to unlock alternative values from these properties.  There will be an ability to profit from this disruption, and we could expect Shopoff Realty Investments to be able to capitalize on this opportunity.

We are also focused on several recent law changes in California that may come to our aid in the housing business.  Among some of these changes are AB 2011 and builder’s remedy, where the state has taken away the communities’ discretion in stalling new housing projects.  We believe we can utilize these tools to speed approvals and add value to our investments, while serving the broad demand for new housing in the communities we serve.  We plan to add investments in workforce housing during the coming years to deliver quality housing to the people who need it most.

As with prior years, I feel it appropriate to express my gratitude. I am grateful to the many thousands of investors who entrust us with their capital. I am grateful for the dedicated team at Shopoff Realty Investments who make my job easier and so enjoyable.  And I am grateful that we were able to celebrate 30 years in business this year, a milestone only a few firms achieve. Thank you all for providing me the tools to continue to make investment decisions and to deliver favorable results for all our partners.

The views, thoughts and opinions expressed in this outlook belong solely to the author. This outlook is based on current public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification.

About Shopoff Realty Investments

Shopoff Realty Investments is an Irvine, California-based real estate firm with a 30-year history of value-add and opportunistic investing across the United States. The company primarily focuses on proactively generating appreciation through the repositioning of commercial income-producing properties and the entitlement of land assets. The 30-year history includes operating as Asset Recovery Fund, Eastbridge Partners and Shopoff Realty Investments (formerly known as The Shopoff Group). Performance has varied in this time frame, with certain offerings generating losses. For additional information, please visit www.shopoff.com or call (844) 4-SHOPOFF.

Disclosures

This is not an offering to buy or sell any securities. Such offer may only be made through the offering’s memorandum to qualified purchasers. Any investment in Shopoff Realty Investments programs involves substantial risks and is suitable only for investors who have no need for liquidity and who can bear the loss of their entire investment. There is no assurance that any strategy will succeed to meet its investment objectives. The performance of former assets are not indicative of future results of other assets.

Securities offered through Shopoff Securities, Inc. member FINRA/SIPC, 18565 Jamboree Road, Suite 200, Irvine, CA 92612, (844) 4-SHOPOFF.