Recent market volatility and global shifts in the business climate make it increasingly likely that a recession of some severity is imminent. Public real estate investment trusts (REITs), a leading indicator of private real estate, are down significantly, while stock markets are down by almost 20 percent.
The December 2018 market drop of 15% occurred with a shortage of relevant news. However, the recent market falls, fears of COVID-19, and the drop in oil prices have all served as a stimulus. As business and leisure trips have been postponed, consumption and activity levels have plunged.
In a nutshell, the recent market decline is unique.
The good news is that, unlike in 2008, real estate is not the root or the problem’s primary focus. However, we are still taking the following steps to protect and increase the wealth of the private real estate investors who have placed their faith in us.
Risk Management
Due in large part to the rigorous approach to risk management, we have attracted the support of more than 1,000 investment partners. They are fully aligned with the investors, and many of us have invested significant personal cash alongside theirs. Since the establishment of Origin near the conclusion of the last recession, they have firsthand experience with the need for proactive risk management in preserving and expanding capital during economic downturns. To mitigate the effects of a downturn in the fundamentals, they have made strategic decisions such as investing in high-growth markets, putting a premium on quality assets, maintaining a low leverage ratio and purchasing at the correct time.
Pausing New Property Acquisitions
Deals in the late stages of the pipeline intended for Origin Fund III, the Origin QOZ Fund, and the IncomePlus Fund have been put on hold indefinitely. More than $241 million was generated from these trades, which equates to 6-12 months of effort on Origin’s part. Although this was a tough call, they had unanimous support from the team because these terms were agreed upon in a more stable market with growth aspirations that are not likely to materialize. If they were too close today at these prices, their performance would be much worse than we anticipated. Thus, they need to adjust the prices to reflect the current market reality. Origin incurs operational costs associated with the team’s work spent discovering, underwriting, and negotiating these partnerships. However, doing so is the best long-term decision they can make for their investors. Shortly, they only plan to make opportunistic purchases, and they’ll be keeping a close eye on the market’s underlying fundamentals to evaluate if and when we should re-enter it.
Putting a Halt on Property Purchases
You need to know if any developments are among the many that will be delayed because of the global supply chain disruption. The internal asset management group is committed to achieving maximum efficiency across all our properties. They are making adjustments to the business strategies as needed, such as decreasing the scale of the capital expenditures on specific projects so that they can save money and safeguard the investment. They are fortunate to be nearing the end of selling four properties in closed funds, which allows them to reduce the exposure to risk at this time.
Altering Report Frequency from Quarterly to Monthly
As the year progresses, they will increase the frequency of the performance reports sent to its investors from quarterly to monthly. While quarterly reports are useful while conditions in the market are stable, the rate at which information is now changing makes such reports obsolete. Our investors must know as much about the status of each property.
What Lies Ahead
They will keep trying to secure committed cash to get to the point where you can go on the offensive. The team will continue looking for agreements with enormous profit potential as they work to position the company to take advantage of a new pricing environment. As for the future, they anticipate a gradual decline in prices and a resumption of a more value-oriented climate, though nothing like what we saw in 2008. The markets may have been expensive for the past year or two, but debt and equity players have acted appropriately during the past decade. The market will clear some of the supply and pricing concerns we’ve seen over the past two years, but it will take some time. In light of what we know now, the measures we’ve taken this week are farsighted, and they’ll guarantee our long-term success and the success of our investment partners.
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