How to Secure Your Real Estate Future
Start with an asset that makes sense today—not just in the future.
The economy is currently proving an old point: Nothing is certain but uncertainty. For all the plans that people, companies and governments have, rapid changes in circumstances result in disruption.
Despite years of attempts by the Federal Reserve to tame inflation, it remains well above the central bank’s 2 percent target. Greater-than-desired inflation has resulted in higher interest rates: short-term ones triggered by the federal funds rate and longer-term ones like the 10-year Treasury yield still hovering around 5 percent.
The cost of real estate investment remains elevated whether discussing construction loans, bridge financing, or full mortgages. However, there is good news. It is possible to lock in investment strategies now with room for future changes if you remember lessons from the post-pandemic years.
Many high-net-worth investors were beguiled by the government-directed zero interest-rate policy to preserve liquidity and credit, as well as the high leverage lenders offered. Unfortunately, too often they assumed favorable conditions would continue forever. There was inadequate planning, strategy and hedging. Then inflation jumped due to immense supply chain disruption. The Fed rapidly hiked interest rates that did little or nothing to reduce inflation.
Real estate properties purchased by investors who had little previous experience with the asset class were pummeled by falling CRE valuations, often without room to refinance without significant additional capital. The financial pain has lasted, according to J.P. Morgan Asset Management. Values are still almost 25 percent below the peaks in 2021 and 2022.
Waiting for better conditions, while inflation pulls value from available capital, is no solution. What you need you need is a strategy that accounts for three possible outcomes and advisors who understand the implications and process.
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Think in today’s terms
The strategy starts with something that works today, meaning an investment that can stand on its own without counting on specific future economic changes. For any CRE investment, you want something that has a good chance at value growth, sufficient net operating income—also with growth potential—and strong property management.The intent is to find a reasonably-priced asset that, when properly run, generates enough revenue to throw off free cash flow, and whose purchase doesn’t depend on favorable economics. Pay attention to costs, ingoing cap rate, current NOI and the ability to upgrade and attract higher rents.
One of three things will happen: Things will remain the same, they will improve or they will decline. If they remain the same, you continue banking free cash and building value.
If market conditions and rates improve—noting that the latest Fed Summary of Economic Projections from September 2026 shows a federal funds rate that remains above 3.0 percent through 2029—then investors have the potential to refinance. Then you can reinvest the savings to improve current properties further diversify or take the profits.
If, instead, conditions deteriorate because of persistently high or rising rates, new regulations or other disruptions, you should consider how long before your current loan matures you need to pay off the loan or refinance. An interest rate hedge and tighter operations to lower costs might also make sense as defensive measures.
The most important point is to preserve flexibility for future decisions and modifications if necessary and to ensure that valuation isn’t the only tool you use to act strategically.
Jonathan W. Hipp is principal of U.S. Capital Markets & head of the U.S. Net Lease Group at Avison Young.
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