Trends Watch: October 20, 2016
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies Snyderman.
This week, Elana talks to Eric Phillipps, Co-Founder, Conrex.
Where are we in the real estate recovery cycle and where do you see opportunities?
We are seeing continued solid recovery in the markets where we operate: high-growth secondary cities of the Southeast and Midwest such as Columbia (SC), Raleigh-Durham, Nashville, Indianapolis, and Birmingham. In these growing metro areas, we see employment, population, and economic growth higher than the US median, yet still with very affordable prices for single family homes. In our view, in the areas we operate, we’re in the fourth inning of a nine inning game.
As for real estate markets in other parts of the country, we don’t necessarily find them very relevant to what we are doing at Conrex. We perform extensive research through our analytics to find MSAs (metropolitan statistical areas) where demographic trends are favorable going forward.
How has the lending climate affected the real estate market dynamics?
Right now rates are low for those who are able to obtain mortgages, but borrowing standards are much more stringent than they were before the financial crisis, so a lot of people who historically may have bought are now renting.
Conrex identifies undervalued homes that need a small amount of renovation. The average buyer can’t access this level of value because they typically won’t have the extra cash needed to fund a renovation on top what they have already paid for the down payment. Renting is also preferable to those who want the enjoyment of living in a single family home versus an apartment, but may not want the exit burden of homeownership—having to sell the property when life plans change.
What in your view is one of the biggest misconceptions with regards to investing in alternatives?
That liquidity is king. The notion that anything that ties up money for more than a year or two is somehow taking on much higher risk is simply off-base. Our REITs have a stated maturity of seven years, but our targeted exit is likely less than five years. Our feeling is that investors often don’t realize how much extra return they can generate by having more patience with their investments. Right now, and we believe going forward, investors in specialized niches like ours can create a considerable return advantage, including high yields, by extending out as little as four or five years.