While knowing the neighborhood where you are investing is certainly an essential component to real estate success, following macro trends can give you a competitive advantage. You may be able to better understand how your local market could be impacted. In a recent podcast, I spoke with Lonnie Hendry, Chief Product Officer at Trepp and host of The TreppWire Podcast, a weekly show which offers insights on commercial real estate, structured finance, and banking news and trends. Lonnie shared the value of keeping the big picture in mind as you operate in your local market.
Most recently, the impacts of new tariffs have hit the headlines; as important as it is to account for their effect in your investing decision-making, sometimes tariffs fall into the category of waiting and see what the ultimate implication will be on commercial real estate.
As we wait for this to unfold, here are other macro issues to consider as you move forward with real estate investing.
The Impact of Global Capital
Whether you’re buying a small multifamily in the suburbs or underwriting a large office building in a major metro area, your transaction will likely involve some level of capital. Those resources, especially funds coming from banks, private equity, or institutional lenders, will typically be deeply influenced by macro trends. When the Federal Reserve raises interest rates, for example, it immediately affects borrowing costs. Another effect relates to lenders, as they typically react by tightening their underwriting standards. For this reason, even if your local market is performing well, you might find fewer lenders willing to finance deals—or the terms become more expensive.
Insurance, Taxes, and Tariffs: Cost Drivers
In recent years, insurance premiums in commercial real estate have been influenced by natural disasters and the claims that follow. In some markets, especially where insurance used to be a minimal cost, there could now be higher associated charges. Similarly, macro policies like tariffs and taxes can drive up the cost of building materials, labor, and imported equipment. If you’re involved in ground-up development or value-add renovations, this could lead to increases in your project’s budget.
National Sentiment Shapes Local Perception
Macro trends also influence how people view the real estate market and the decisions they make. When rates rise, buyers often opt for the sidelines and wait for price corrections. At the same time, sellers might get nervous if deal activity slows down. Conversely, when rates drop or a favorable economic policy is announced, markets may respond by an increase in transactions. Investors may step forward and sellers might raise their prices.
How to Stay Informed Without Getting Overwhelmed
You can set up a routine to follow macro trends and be aware of how they could impact your area. You might start by subscribing to newsletters and listening to podcasts which report on large-scale changes. Key indicators like the 10-year Treasury, inflation rates, unemployment data, and major policy announcements can also provide clues.
You may also choose to follow the decisions lenders are making and trends in the debt market. You can check CMBS (Commercial Mortgage Backed Security) delinquency rates, for instance. CMBS is effectively a pool of loans which get bundled together and sold as a bond on the secondary market. The underwriting process and mechanics of the loan are effectively the same as a bank loan; however, there are some nuances. CMBS loans are typically non-recourse so they don’t have a personal guarantee attached to them. They often get fixed rate financing for a 10-year term and are covenant driven, so there isn’t as much of a relationship component as you might find with a local lender.
Your deal may be in your neighborhood, but ultimately your success will depend on your ability to interpret and act on what’s happening globally. Real estate is cyclical and macro trends do more than influence your market—they often set the tone. To stay ahead, you can follow the bigger picture to see what effects may come your way. This will help you be prepared to make informed decisions and take advantage of upcoming opportunities.
Read the full article here