Pathfinder Report – February 2015
We are pleased to announce the $30 million initial closing, in January, of our latest real estate investment vehicle, Pathfinder Partners Opportunity Fund V-A (‘Fund V-A’). We are targeting a $100-$150 million fundraise in Fund V-A. Click here for a summary brochure on Pathfinder Fund V-A.
The Three “D’s” – Debt, Deflation and Demographics – and Implications for Investing
By Mitch Siegler, Senior Managing Director
When we wrote last September about the possibility that the next big move in interest rates could be down, the U.S. 10-year Treasury bond was yielding 2.42%. On February 2, the yield hit a 21-month low of 1.67%. Of course, everybody and his brother believes the Fed will move this year to boost rates but what if higher rates are still six to twelve months – or more – away?
Here’s why we believe the party for borrowers (and the wake for savers) may go on for a while. Macro (global) economic forces swamp micro (U.S. economic growth) considerations. Japan’s continuing deflation, China’s economic slowdown, the stagnant European economy and collapsing oil prices contribute further to deflationary pressures everywhere. These global trends far outweigh U.S. job creation and wage inflation (whenever that may come). We group all of these forces together under the 3-D umbrella – debt, deflation and demographics, which we’ll discuss below.
The Pitfalls of Elephant Hunting and Other Musings for the New Year
By Lorne Polger, Senior Managing Director
This is typically the time of year we set some business and personal goals. A time for reflection, study and thought. What are we going to buy, what are we going to sell, what are we going to renovate, and how much weight are we going to try to lose? Well, let’s skip right over the last one, it usually doesn’t end well for most of us.
The Pathfinder team recently attended one of the largest annual real estate fund conferences in the U.S. I believe it was the seventh year in a row that we’ve attended. A few takeaways:
A Tale of Two Millenials
By Chris Gibson, Senior Associate
As Charles Dickens famously penned in his novel A Tale of Two Cities, “It was the best of times, it was the worst of times.” Today we are seeing a modern variation of this memorable adage – but this time, it’s A Tale of Two Millennials.
Millennials, a generation of more than 80 million (that is, 25% of the U.S. population), are being closely followed by the media, undoubtedly because of the immense impact they are having on migration trends, city demographics and, most notably at Pathfinder, on apartment demand and rental rates. Unlike their parents and grandparents, millennials are marrying much later in life, choosing to focus on building their careers before settling down. They are highly educated and keen on using technology to communicate, and are thus optimistic about their ability to change their socioeconomic status. Millennials are also optimistic about buying a home someday – although, for most that dream is far off in the distant future.
As rents continue to rise, owning a home or condominium has become less expensive than renting in many cities. And after you calculate the mortgage interest and property tax write-offs, ownership becomes even more appealing on an after-tax basis. According to analysis done in the fourth quarter of 2014 by Trulia’s chief economist, Jed Kolko, homeownership remains cheaper than renting in all of the U.S.’s 100 largest metro areas. It comes as no surprise that developers have started to recognize this trend and condominium construction has begun to awaken from its decade-long slumber. Several markets are seeing new, for-sale condo projects break ground including Miami, New York, Washington D.C., Philadelphia, Chicago, Atlanta, Seattle and Los Angeles.
New Condominium Project in a Rapidly Gentrifying Area
The original pioneers of Denver’s Highlands neighborhood headed north across the Platte River in search of fresh air, clean water and a more moral lifestyle than was found downtown. Originally, the neighborhood was a city, incorporated in 1875, and the name originated from the region’s location on a hill overlooking downtown. Home to more than 35 subdivisions, most of which still exist today, the Highlands was annexed in 1896 and became an official suburb of Denver. Today, young residents are flocking to the area, drawn by its historic charm and many restaurants, clubs, bars and boutiques. The gentrification has driven up home prices and rental rates in the area; since 2012, home prices in West Highland (where Zuma is located) have risen 24% and are predicted to rise further this year. Rental rates have risen over 21% since 2012 and rates are on average 22% higher in West Highlands than in the city of Denver (Zillow).
“Life is either a daring adventure or nothing at all.”
– Helen Keller
“Risk comes from not knowing what you’re doing.”
– Warren Buffet
People who don’t take risks usually make about two big mistakes a year. People who do take risks generally make about two big mistakes a year.”
– Peter Drucker, Business Management Guru