Tilden Moschetti: Real estate
markets don't exist in a vacuum,

and this is critically important
when you're putting together a

syndication or a fund to make
sure that you can provide your

investors the kind of returns
that you've told them all along,

that you can get them. My name
is Tilden Moschetti, and in this

video, we're going to go through
those macro market tracking

trends to keep an eye on to make
sure that you are successful and

can deliver.

When it comes to tracking the
macro market, what we're talking

about is those big picture
things the entire United States,

what's going on now, really
here, what we're looking at is,

what phase of the real estate
cycle are we in? Are we growing?

Are we shrinking? Where is the
market going? So we can

anticipate that the data sources
we use are going to come from

things like the Bureau of Labor
Statistics and what the Fed is

doing with interest rates,
things like that. Those are the

tools that we will apply to
making sure that we do that. And

here we're going to talk now
specifically about what those

different phases of the real
estate cycle are how you can

identify what phase we're in.
The first phase of the real

estate cycle is expansion. This
is when things are looking good.

Everything is going on right on
the macro scale, what we're

looking for is there's a robust
GDP growth. GDP is massive. It's

going high. We look at major
levels of employment are

increasing, more people are
going back to work, so not

unemployment. Employment levels
are increasing, and this also

leads to more more consumer
spending. So we start to see

consumer spending go up, up up
as well, interest rates may

begin to slightly tighten as we
do this, in order to curb that

inflation from coming along. And
then overall, business and

consumer confidences are super
high. On the Real Estate

specific side, what we're
looking for is a major demand.

So there's a lot of demand on
rents. So vacancies are

extremely low, specifically. And
what you're interested in is in

the property type that you're
looking at, the asset type,

whether it's multi family,
whether it's industrial, whether

it's retail, whatever it is, we
want to see that that vacancy

factor be lower than, say,
normal times. We also want to

see new new building happening.
We want to see an acceleration

of development with along with
that declining vacancy, we want

to see rent growth go up. Rent
growth is the number one

predictor of success in a
syndication that rent growth

gives you the appreciation that
you can pay back to your

investors, and overall, your
developers are optimistic.

Everybody's looking to build in.
The general feeling in the air

is very high, and that is the
expansion phase. The next part

of the real estate cycle is what
we call the peak or over

saturation. Once we've reached a
certain point, economic growth

starts to hit a peak, and then
inflation starts taking off

massively, right? So we've hit
the absolute peak of where we're

at, inflation is going up, and
as a result of that inflation

going up, central banks start to
restrict the money policy. They

turn the volume down on on it.
So we will see interest rates

rise in those buybacks massively
decrease in what the and what

the Fed is doing. So we also
start to see that sectors are

getting overheated. So we start
to see, you know this, it's kind

of turbulent times in pricing,
or in rents or something like

that. In the real estate
specific side, we start to see

the the demand and supply
reached kind of an equal

equilibrium. We're not seeing
any any decreases in the amount

of vacancy, but we're not seeing
any massive increases. It's just

started to level off rents.
Growth is not happening, really

at all. It's kind of plateaued.
Rents being where they're at.

New Construction is probably
still continuing with developers

who came in late, so they're
still developing, and they're

still trying to get it done. So
relying on new development is

not really the best indicator.
Now, as vacancy starts to

stabilize over, building starts
to begin, and that's what leads

to this oversupply, because
we've got this backlog of

developers, right? We've got 12
to 18 months these developers

have been working on it. If they
got in late cycle, you know? And

there's six months of still, of
good times, and now we're it's

starting to be over there in
that oversupply period. So we

see then rents start to come
down. And as rents start to come

down, that's what transitions us
into the next cycle. The third

part of the real estate cycle is
the slowdown or the recession.

This is after that oversupply.
And so right now, we've got way

too much stuff being built.
There's not the demand for it.

And so what does a property
owner want to do? They need to

decrease rents to improve their
vacancy. It's better to have a

property with collecting less
rent than collecting no rent at

all. Right, so that's what, what
they're going to be doing on the

macro scale and the country sky
scale, economic activity is

slowing down. GDP starts to turn
negative. We see that inverse of

the yield curve happening. So
employment levels are starting

to decline as cons and consumer
spending starts to go down and

and consumer confidence starts
to go down. At this point,

central banks are probably
thinking about, well, we need to

at least stop raising interest
rates and probably turn the

volume back up just a little bit
so we might see a little bit of

a cut of interest rates to ease
off on the recession. But

really, we're trying, and really
there they're trying to prop up,

not inflation, because inflation
shouldn't be the problem at this

point. What? What is the problem
is that employment, that's their

other part of their mandate to
ensure employment. So as

employment starts to go down,
they're probably starting to

maybe cut interest rates in
order to keep employment higher.

We also see a decline in
business activity going on on

the real estate side, we see
that massive decrease in real

estate usage, higher vacancy,
lower rents. There is a negative

rent growth most of the time, or
at least stagnant right? At

least rent growth. Rent isn't
growing and staying the same.

Construction just basically
slows. And you may see some

developers just freeze all their
development activity entirely.

Property values are starting to
decrease and soften. The selling

time of property starts to get
longer and longer and longer and

generally cap rates start going
up. The fourth part of the cycle

that leads us into is the
trough. So that's when that

recovery starts beginning. So
once we've bottomed out, once

we've hit that economic activity
at its lowest point, that's when

this cycle starts taking place.
We've got super high

unemployment, but layoffs start
to slow, which signals, well,

maybe a recovery is coming.
Central banks are probably

freaking out right now, and
their main they're starting to

shift that interest rate lower
to try and keep the try and get

the employment levels back up as
well. Consumer confidence is

basically pretty low. It's near
the bottom, but maybe it's

starting to improve just
slightly. On the real estate

side, we see property values are
at their lowest level. That

they're going to be high, high
vacancies are there, but we

start to see some absorption
happening. So we've we might

start to see some of the the
vacancy rate go down just

subtly. This will eventually
lead into the the period where

we're cut, where we're
expanding, so we might just see

that little bit of a bottom
starting to come up. Now,

actually, construction is
minimal at this point, but what

what developers are doing is
they're acquiring land or

projects to develop. This is
generally when they try to come

in and start working on their
entitlements, because they know

what's coming in that next
cycle, and they want to prime it

so that they can do it then be
done by the right before that

peak. My name is Tilden
Moschetti. I am a syndication

attorney for the Moschetti
syndication Law Group. We went

through these, these key parts
of the real estate cycle today,

mostly to help you with
identifying how where you're at

in the cycle, so that you can
provide for your investors, you

can provide for yourself, make
sure that your funds and

syndications are successful. If
we can help you with the legal

compliance side or just helping
you with putting your deals

together in the structuring side
as well, give us a call, and

let's see how my firm can help
you. You.

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