Dry Powder. As the snow melts, the rivers fill, and the sun stays out a little bit longer, we welcome spring with a big smile and exposed skin. I grew up under the notion that spring cleaning meant more than pulling out the deck furniture or swapping the skis for a bike and golf clubs; it was the resetting of goals, expectations, and the symbolic fresh start. There is an opportunity with the changing of seasons. Time to declutter, get up earlier, stay out later, eat healthier, exercise more, focus on the people that matter the most, and set yourself up for your personal and financial success.
There is where the dry powder comes in. It's not a metaphor for anything to do with snow, but it refers to accessible cash, assets, and debt levels. The truth is that as real estate professionals and humans, we need to be ready for all economic seasons and circumstances. We believe there is an opportunity on both sides. There is no doubt that the market has slowed for a number of reasons; mortgage rates, SVB and regional banks, current and potential international relations conflicts, construction prices, finite land, workers returning to the office, and the subjective FOMO has slowed. There is also a case to be made for owners who are still on the brink of deciding to sell to strongly consider that 2023 is shaping up to be one of the stronger years, inventory remains low, price per square foot continues to creep up, and regardless of the year or season people want to be in the Roaring Fork Valley.
Those who are ill-prepared on either side of the aisle will suffer, and those who kept the dry powder and their debt levels reasonable with cash or assets are champing at the bit. Here are a few macroeconomic indicators we are keeping an eye on:
- There are palpable recessionary and inflationary headwinds.
- Blackstone has assembled a record-setting $30.4 billion-dollar war chest to invest in distressed assets.
- Investors who bought properties at the peak of the market in 2021 often financed those deals with floating-rate mortgages. Many of those loans will reset at higher rates.
- Debt will weigh on businesses with low occupancy. Property values will come under pressure.
- Investors purchased $14 billion of apartment buildings in the first quarter of 2023, a 74% decline in sales from the same quarter in 2022, the largest annual sales decline since 2009.
- Key difference between SVB and the 2008's crisis: this was not a credit crisis. There’s no talk of subprime mortgages going bust and credit quality remains strong.
- Fewer transactions on a local and federal level mean fewer taxes. Less city and county resources to help pay for public housing and infrastructure.
- Land is still king. Reported record sales of $766 million in 2022, beating the previous record of $750 million in 2021.
- The market for off-site home manufacturing is growing rapidly, from $16B in 2019 to a projected $21B by 2027 as construction feels prime for disruption.
We are here to help our clients make the decision that is best for them. We would love to discuss what your kegs of dry powder contain and how we can help. Please reach out so we can dust off our bikes and clubs and make the most of this spring!
