How to Underwrite Real Estate Acquisitions During Volatile Markets
In the wake of the COVID-19 pandemic, aka “the black swan event of 2020,” and the subsequent economic uncertainty that it has triggered, real estate investment managers and operators must reassess risk, and accordingly recalibrate their respective underwriting metrics.
Capitalization rates are intended to encapsulate and reflect appropriate risk premiums above a base rate. However, the rapid spread of the coronavirus has inhibited the ability to accurately assess and predict short-term and long-term risk premiums across all asset classes. This will require a wider margin of safety when deciding whether to purchase an asset in the current climate.
Shopoff Realty Investments is an Irvine, California-based real estate firm with a 28-year history of value-add and opportunistic investing across the United States. The 28-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. Information contained in this article is not intended as investment, tax or legal advice and people are encouraged to discuss investment decisions with their legal, tax and financial advisors. There is no assurance that future real estate investments and projects will be successful. Alternative investment performance can be volatile and value-added real estate investments may involve additional risks. A real estate investor could lose all or a substantial amount of their investment. This is neither an offer to sell nor a solicitation of an offer to buy any security. Such an offer may only be made by means of an offering document that must accompany or precede this information. Past performance and/or forward looking statements are not an assurance of future results. Securities offered through Shopoff Securities, Inc., Member FINRA/SIPC, (844) 4-Shopoff.