BizWest Boulder Valley RE Conference: Arsenault Says Real Estate Downturn on the Horizon
BOULDER — As the real estate industry moves into 2020 and beyond, Real Capital Solutions founder Marcel Arsenault is predicting tough times ahead, particularly for certain industry subcategories such as apartments and self-storage.
Marcel, considered a real estate investment guru, said during a keynote address Thursday at BizWest’s Boulder Valley Real Estate Conference that he believes the current economic wave is on the verge of cresting, and the real estate market is in the late stages of its prolonged cycle of growth.
“Growth has been decelerating throughout the year, now at 1.4% annual increase, down from 1.8 percent at the end of last year,” Arsenault said. Real gross domestic product growth is expected to slow even more in 2020.Growing up, both my dad and grandpa were pilots, so I have no fear of flying. In the aviation world, there is a license level above the basic license called “IFR Rated” or Instrument Flight Rules. Basically, when you’re IFR Rated you’re permitted to fly in conditions where all you are relying on is your instrument panel, or “dashboard.” The test to become IFR Rated involves flying with an obstructed windshield, which sounds absolutely terrifying!
The good news: investors still have time to react.
“Lenders drive real estate and when you see them heading for the exits, that’s a bad sign,” Arsenault said. “The nice thing about this business its that its a slow-moving train wreck. You have plenty of time to get off the track and out of the way.”
Demographic shifts and market conditions could prove particularly dangerous for investors of certain types of real estate, namely multi-family rental homes.
As millenials, who are the fastest-growing group of homebuyers, make the move from renting apartments to buying starter homes, the demand for rentals will decrease steeply, Arsenault said.
Making matters worse, a “tidal wave” of new apartment units are expected to be completed in the next year or so, further depressing values, he said.
The sliding demand and increasing supply will cause vacancy rates to spike, he said, forcing lower rental prices.
The same pattern is likely to occur in the self-storage market. Overbuilding in self-storage sector is leading to falling values and serves “as a preview for [what to expect with the value of] apartments,” Arsenault said.
It’s not all doom and gloom in the Boulder Valley real estate market. More sales of starter homes to millenials are expected keep appreciation at around two to three percent annually.
Large homes will likely fare worse as older empty-nesters look to downsize. Millennial buyers have little interest in large, million-dollar homes.
Regardless of where in the real estate cycle we happen to currently sit, Arsenault offered this advice for investors: “If you’re going to be successful in real estate, it’s all about people,” he said. “It’s about finding great bankers, great developers. They don’t have to know everything, but they have to do whatever they do very well.”
