FourPlex Guy Carlos Gonzalez

This is a little bit long but it's very important and relevant ... you can get about 5.5% by buying a treasury ... no risk of development no GPs no LPs... there's a lot of funds that are upside down holding LP money for real estate deals that were built either in over supplied markets or too expensive. The last 15 years were an extraordinary period for real estate. Interest rates generally trended lower and eventually reached historic lows. That created a powerful tailwind for asset values because buyers could afford to pay more for the same cash flow. Many of the largest acquisitions between roughly 2018 and 2023 were completed at premium prices because financing costs were among the lowest in modern history. Those valuations assumed an interest-rate environment that was unlikely to last forever. What many investors may not fully appreciate is that the 2020s could become a relatively flat decade for real estate compared with the remarkable gains of the previous 15 years. If interest rates remain closer to historical norms rather than returning to the ultra-low levels of 2020–2021, cap rates are unlikely to compress the way they did during the last cycle. That means owners should focus on the variables they can actually control: improving operations, increasing occupancy, raising net operating income, reducing unnecessary expenses, and creating real value through better asset management. Counting on interest rates to fall back to 3–4% to increase property values is a speculative bet, not an investment strategy. Ironically, a period of substantially higher interest rates—whether 8%, 10%, or even higher—could create the next great buying opportunity. Higher rates would likely put downward pressure on asset prices, allowing disciplined investors to acquire quality properties at much more attractive valuations. If rates later normalized over time, investors could benefit from both stronger cash flow and valuation expansion. The greatest fortunes in real estate are often made by buying quality assets during periods of stress, not by hoping yesterday’s financing environment returns.