The ongoing challenges facing homeownership are placing strain on the real estate market, but demand for housing remains strong due to supply shortages. To address this issue, innovative rental solutions such as furnished rentals are gaining popularity as remote work becomes more prevalent and work/life standards have changed due to COVID-19. These flexible options offer a potential solution to the housing supply gap. Growth is expected to continue, so much so that in 2022 it is forecasted to account for $139 billion – and expected to grow to $627 billion by 2032. Within the overall market are two broad segments driving growth and largely based on who pays for the stay – company paid and individual pay.
Jon Wohlfert, Managing Director for the HLC Equity-owned Layers brand, and a 35-year veteran of the flexible furnished rental industry comments, “Several years ago, most of the demand came from the “company paid” segment as companies were permanently relocating employees to other offices, sending interns and new hires to headquarters for training, or temporarily assigning employees to other locations to assist with projects. At that time, options were limited to extended stay hotels and corporate apartments. Now, with the growth of the global nomad and work-from-home, the individual-pay segment is gaining ground on the company-paid segment. Because of democratization through technology and the emergence of AirBNB-fueled flexibility, options are quite vast. Layers and its new technology offering, are here to help owner/operators capture more of this expanding marketplace.”
Layers, an innovative flexible furnished brand, has created a proprietary technology platform – Layers Prime – to deliver the individual pay customers directly to corporate housing and multifamily partners.
Layers has begun rolling this out to a few key partners, including Manilow Suites in Chicago and United Corporate Housing in Washington, DC. Layers Prime seamlessly and affordably delivers access to the previously hard-to-reach individual pay market. This solution allows owners to eliminate frivolous spending on resources to secure prospects and tap into a pipeline of qualified residents across 85 travel sites. The internal Layers team handles all set up, 24/7 customer support, and deliver reservations right to your front door.
For more information on Layers and Layers Prime visit layerslife.com/partners or email jon@layerslife.com
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CEO, Daniel Farber sits down with Yonah Weiss on Weiss Advice to discuss the Layers Rental Model
HLC Equity CEO, Daniel Farber was recently a guest on the IREI Podcast.
“Daniel Farber, CEO of the real estate investment firm HLC Equity, is also the producer of the PropTech360 conference, whose latest iteration will take place in June 2023 in Tel Aviv, Israel. He joins the program to discuss the conference and the continuing evolution of the booming proptech space.”
Listen to the episode below!
Also available via:
Since at least the early 2000s, all eyes have been on Millennials. What do Millennials like? Where will they want to live? How can apartment owner attract them to their rentals?
Fast forward to today and there is an entirely new generation entering the rental market. Gen Z is knocking at the door. Literally and figuratively. In this article, we look at what motivates Gen Z and how apartment owners can prepare their properties in response.
Gen Z by the Numbers
Those who were born between 1997 and 2012 are generally considered to be part of “Gen Z”. That makes this cohort between 10 to 25 years old today. Those at the older end of the spectrum are moving away from home, graduating college, and beginning to rent their first apartments.
A study by the Brookings Institute finds that Gen Z is one of the most diverse generations, and likewise they value and seek out diversity in their purchase decisions. Unsurprisingly, Gen Z is the most likely group to identify as multiracial or to be born to immigrant parents.
Gen Z’s diversity will likely impact where and how they want to live. For instance, many will want to live in traditionally ethnic neighborhoods, especially if those neighborhoods are amenity-rich and more affordable than urban centers.
Getting to Know Gen Z
Some apartment owners will have children approaching Gen Z age. Others will have nothing in common with Gen Z and may struggle to relate. Those who are trying to plan for Gen Z renters should spend some time understanding what drives Gen Z in terms of lifestyle priorities. Here are some factors to consider:
- Gen Z values career mobility. Gen Z is entering the job market at an interesting time. There have been widespread labor shortages which has made it a job-seekers market. Many Gen Zers have graduated from college and quickly bounced from job to job in search of higher pay and upward mobility.
At the same time, they’re entering the labor force at a time when hybrid and even remote work is more widely acceptable. This has opened new job opportunities for them, often at high paying rates, and has increased the purchasing power for Gen Zers who can increasingly opt to live in more affordable areas since they are not faced with the same pressures to report to the office every day.
- Gen Zers are entrepreneurial. Gen Z is more likely to shun traditional work than the generations before them. Instead, Gen Zers are pursuing their passions and taking entrepreneurial risks. Technology has made it easier to start businesses. Startup costs are lower and therefore, the costs of failure are lower as well.
Along those same lines, many Gen Z renters are embracing freelance work. The proliferation of freelance work has created new avenues for people to create their own destinies. Some have pursued more standard freelance work (e.g., writing, editing, graphic design, and software engineering) whereas others are utilizing social media to become brand influencers.
- Gen Z is less tethered to geography.
The nation’s youngest adults appear more willing to relocate than any generation before them. Some are relocating to lower costs of living (easier than ever now that more companies are offering remote positions). Others are relocating for better career opportunities.To some extent, this is no surprise. People are marrying and having children later in life. Homeownership is becoming increasingly unaffordable. Those are the key factors that generally cause people to remain in one location. Gen Z has very little tying them down at this stage in life, which makes relocating significantly easier, and apartment living all the more attractive
- Gen Zers are trading big-city life for amenity-rich suburbs.
For many years, real estate developers focused their investments in dense urban areas. Class A apartment buildings sprung up to lure Millennials and the Gen Xers before them. Today, however, it seems as though Gen Z is more interested in living in amenity-rich suburbs.
As evidence, a recent study found that nearly two-thirds of Gen Z reports wanting to live in either traditional suburban locations or “urban light” locations (e.g., outer-ring urban areas) instead of “urban dense” locales.
- This generation is more financially conservative.
A substantial portion of this generation grew up during the 2008-2010 Great Recession—at a time when their parents lost jobs, took on massive credit card debt, and sometimes lost their homes to foreclosure. Early data suggests that Gen Z will be more financially conservative as a result. They are more hesitant to take on debt, are seriously considering the cost of college, and are opting for more affordable living situations to the extent possible.
What Multifamily Owners Can do to Lure Gen Z Renters
Based on what we know so far about Gen Z, multifamily owners can start to be proactive about preparing their properties to lure Gen Z renters both now and well into the future.
- Invest in technology.
Gen Z are digital natives. They have grown up with smartphones, iPad and other technology at their fingertips. They will expect to use software for a variety of purposes, ranging from virtual apartment tours to filling out rental applications. Multifamily owners should get comfortable using paid ads to target their ideal renter demographic, and then should invest in the mobile technology needed for online rent payments, R&M requests, text communications and more.
- Value high-quality shared spaces.
Given Gen Z’s financial constraints, many will look to rent smaller apartments (on a higher cost per SF basis) in buildings that have robust amenity spaces. Top priority should be on carving out thoughtfully designed co-work or meeting spaces that people can utilize while working from home. Investments in other shared spaces, like a common kitchen and outdoor terraces, will also be important as Gen Z will look at these as extensions of their home. It’s worth noting that Gen Z is especially comfortable sharing amenities as they have grown up during the proliferation of “shared” everything—from Uber/Toro to Airbnb—where personal ownership is less important.
- Smart home technology is a must.
Gen Z’s life has been made easier by smart home technology. They routinely use voice-enabled technology like Alexa to control their Nest thermostats, lights, and more. Integrating smart home technology is a rather low-cost investment that will pay dividends to multifamily owners looking to attract Gen Z renters to their apartments. Other investments may include smart plugs, charging stations, and integrated Bluetooth speakers.
- Value Sustainability.
Gen Z is perhaps the most environmentally conscious generation yet. Climate change is one of the leading issues among Gen Z, and in turn, they show their loyalty to brands that are responsive.
There are many ways multifamily owners can be proactive in this regard. For example, new multifamily developments (or heavy value-add investment) may consider pursuing LEED certification, or they may even seek the gold standard of environmentally sustainable apartment buildings – Passive House designation.
At a smaller scale, owners can utilize energy efficient appliances, HVAC systems and lighting. Some may consider adding solar panels, geothermal, and/or water reuse systems.
Multifamily owners should also have their eyes towards adding EV charging stations to their property. Electric vehicles are becoming more popular and it will be critical to have Level-2 chargers on-site to attract those who own them.
- Elevate your brand.
Gen Z’s obsession with social media makes branding more important than ever. Gen Z wants to lease apartments that have iconic features that they can show off online. HLC Equity’s Layers communities are being created for this new generation of renters seeking flexible living options with all the perks of modern apartment living and hospitality.
To the extent your property allows, consider what sort of “lifestyle” your property offers and then invest in amenities, artwork and other features that help it sell.
After attraction, focus on retention.
Although Gen Z is a highly mobile cohort, most will not want to move from one apartment to another every year. Owners who have lured Gen Z will need to simultaneously focus on keep them. The best way to do that is to engage with Gen Z. They want their voices to be heard. Ask them for their feedback about what improvements, amenities, events, etc. would be beneficial and then take their feedback seriously. Those who feel like they’ve been heard will be more likely to renew. 
Current Gen Zers seem increasingly aware that homeownership may be out of their reach (at least, for some time). Nationally, the median home price is more than $440,000 and, in some markets, it’s more than double that. Interest rates continue to climb, making homeownership that much more unaffordable. This has effectively created a permanent renter class. Multifamily owners who want to capture this demographic can start taking proactive steps today to capture these renters well into the future.
To learn more about HLC Equity’s LAYERS properties and offerings, visit layerslife.com
Interested in how HLC Equity and their investors are working to provide housing for Gen Z and others?
Visit HLCEquity.com/direct
HLC Equity, a multi-generational real estate investment firm, announced that the company has recently been recognized as a leader in the multifamily space and awarded a top 2022 Multifamily Influencer by Globe St. Real Estate Forum.
“It’s an honor to be included in Globe St.’s Multifamily Influencer list along with so many other amazing peers in the industry,” said Daniel Farber, CEO at HLC Equity. “The fact that we were recognized in the Organization category illustrates the dedicated team and corporate culture we have built here at HLC. While interesting times are on the horizon, the HLC Equity team looks forward to continuing to expand our portfolio and to carry out our mission of creating thriving communities.”
The Globe St. Multifamily Influencer program features some of the top professionals in the multifamily industry. As part of the recognition, HLC Equity was featured in the October issue and honored at the awards ceremony held this past week in Los Angeles during Globe St.’s Multifamily Fall Conference.
About HLC Equity (www.hlcequity.com)
HLC Equity is a multi-generational real estate investment management company, with over 70 years of experience and an expansive real estate portfolio. Their entrepreneurial spirit of a startup is juxtaposed with institutional level execution. HLC Equity utilizes its real estate portfolio to carry out its mission of building thriving communities. For more information, please visit www.hlcequity.com
Economic turmoil is nothing new. The Great Recession is not so far in the rearview mirror. COVID sent the stock market crashing down and then roaring to new highs. Sky-high inflation and rising interest rates are just the latest conditions to spook investors.
Precisely where the markets go from here is anyone’s guess. However, there is good reason to believe that a recession is on the horizon. If not today, then most likely within the next six to twelve months. We’re already starting to see a market correction.
There’s no better time than now to start preparing your portfolio for an impending downturn.
Defining a “Recession”
A recession is best thought of as a widespread decline in overall business activity. Recession can be measured several ways. The most common measure is when there is a reduction in GFP quarter over quarter.
Recessions can impact sectors in different ways. For example, real estate is an illiquid asset class and therefore, it generally takes longer to feel the impacts of a recession in real estate than in other sectors. It may take months for the impact of declining yields to be realized, and those impacts may linger for longer than other asset classes that can more readily bounce back.
Tips for Creating a “Recession-Resilient” Portfolio
Savvy real estate investors will take certain precautions well ahead of a recession. For many, protecting their downside is an inherent focus regardless of where we are in any market cycle. It is just core to their investment philosophy. Those who prioritize capital preservation from the outset are generally well positioned when faced with economic upheaval.
That said, there are some things investors can do when faced with a looming recession—even if they have not taken those steps yet. Consider the following.
Lower utility costs.
Utility costs, especially the price of electricity, are soaring. There are two ways that owners can get ahead of rising utility costs.
The first is to enter into long-term agreements with your local energy providers. At HLC, we have been doing this for years. We always negotiate our rates and then lock in the lowest price possible. This has been especially valuable lately, as the cost per kilowatt hour has doubled since last year. We’ve locked in a substantially lower rate that provides us with some insulation as energy costs have risen.
The second strategy we look at is implementing a RUBS (ratio utility billing system) program. This is a great way of passing costs through to tenants.
See, many properties were originally built with only one set of utility meters. The single set of meters measures electricity, gas, and water usage for the entire building. At a single-metered property, the owner typically pays for all utility costs and then charges a rent premium to cover those costs.
With a RUBS program, the owner allocates utility costs to tenants without submetering each unit. Instead, each tenant pays a certain ratio of each month’s utility billing using a pre-determined formula. That formula is usually based on several factors including the size of the unit, number of bedrooms/bathrooms, whether the unit has a dishwasher or in-unit laundry, number of tenants living in the unit, etc.
This way, owners limit their exposure to fluctuating utility prices. We implement RUBS programs at our apartment buildings whenever possible.
Recondition existing vendor contracts.
Many owners acquire properties with third-party vendor contracts already in place. This could include, for example, the contracts for property management, trash service, snow removal, pool service and more.
When we acquire a property, prior to purchase during the due-diligence phase we look over each vendor contract with a fine-toothed comb. We then analyze whether these vendors are a good fit for our business model and if so, whether the terms of the agreement are aligned with market standards.
Whether you have recently acquired a property or have owned a building for years, now is a great time to evaluate all vendor contracts. Just as you want to lock in rates on long-term contracts with utility companies, consider doing the same here. This is something we routinely do and it helps to fix costs. Heading into a recession, the more fixed costs you have, the more predictability you’ll also have in turn.
Expand your vendor and supplier networks.
In addition to the above, it is important to build out your vendor and supplier networks. This is always true, regardless of where we are in the market cycle, but it is especially true when faced with rising inflation and a potential recession. As costs increase, you want to be sure you aren’t getting gauged. One way to mitigate this is by having a robust network of vendors and suppliers. This allows you to quickly obtain multiple quotes to ensure you’re getting fair pricing. When need be, you can substitute vendors if you have a network to choose from.
Having a network of suppliers has become more important in the wake of widespread supply chain issues. You cannot wait for weeks to replace a refrigerator, but also don’t want to pay triple the price because you’re desperate. When you have a network of suppliers, you can see who has the inventory when you need it—something that can work to keep costs down.
Leverage in-house staff to the extent possible.
We’ve talked a lot about vendors and service providers, but when faced with a recession, another strategy is to bring certain services in-house. For example, we try to do as much unit turnover (e.g., cleaning, painting) in-house as possible. This minimizes the need for third party vendors whose pricing may be on the rise.
Another benefit to using in-house staff is that we can respond faster. For example, during a downturn, turning over units quickly becomes important. When we can use our in-house team, we avoid relying on vendors who may be over-scheduled and may not be able to get to our property for several days. Otherwise, we’re losing money for every day that unit sits vacant.
Routinely appeal property taxes.
They say that the only two things in life that are guaranteed are taxes and death. Indeed, real estate taxes are often one of an owner’s largest fixed costs. Most people assume it’s a cost they have no control over.
Yet we routinely appeal our property tax bills. In places like Texas, the assessed tax rate has continued to rise as property values have risen. However, during a downturn, property values generally decline. Unless we appeal our property taxes, our bills will generally stay the same (even if they don’t continue to rise). When we see a market cooling, we routinely challenge tax assessments to account for lower values. We then capture that delta. Not every appeal is successful, but filing an appeal is a low-cost way of trying to reduce your tax burden.
Utilize long-term, fixed rate debt.
Debt is generally one of the largest costs associated with owning a commercial property. Even a marginal increase in interest rates can translate into tens of thousands of dollars a month in additional interest.
This is why the vast majority of our portfolio utilizes long-term, fixed-rate debt whenever possible. Some projects do require shorter-term variable debt in order to stabilize. Whenever this is done, it is recommended to purchase an interest rate cap until you are able to refinance into a fixed-rate long-term loan. This not only saves us money as interest rates rise, but it also provides more predictability compared to floating-rate debt. We monitor the debt markets closely to take advantage of lower rates whenever possible.
Prioritize tenant screening.
In deeper recessions, an owner’s tenant qualification process matters more. Finding great, credit-worthy tenants with sufficient income helps to prevent widespread delinquency. Develop a leasing criteria that will filter out applicants who are at a higher risk of not making future rent payments. Consider partnering with a 3rd party service who will work with you to create a screening process that helps ensure your applicants meet your minimum qualifications. Always remember to follow Fair Housing Guidelines in your qualification process.
Carefully consider capital expenditures.
Many people acquire assets that they intend to renovate and improve. Some plan to make these improvements immediately. Others will make improvements more gradually. Some will make “heavy” value-add improvements; others will use a lighter touch.
In any event, now is a great time to consider your capital expenditures. First, be sure you have a carefully crafted budget in place for any CapEx investments. Then, categorize improvements as necessary vs. optional. Focus on the necessary improvements now. Optional improvements might be scaled back until the economic uncertainty has passed. Holding off on some investments may be warranted, even if contrary to the original business plan, if it helps preserve cash reserves.
Any building improvements should also be made in the context of what’s happening in the market both locally and more broadly. For example, if a recession causes widespread job losses, people will be more price conscious. They’d rather rent a clean, safe, and affordable apartment rather than one with all new bells and whistles. Owners need to ensure they’re able to get sufficient return to warrant their optional value-add investments.
Look to preserve liquidity.
Given the illiquid nature of commercial real estate, owners and investors generally want to preserve as much liquidity is possible. This is always true, but it is especially true when faced with a recession. This is because the debt and equity markets tend to dry up during recessions, making it harder to purchase, finance, and sell commercial property.
One way to preserve liquidity is by selling underperforming assets. To the extent you have underperforming properties in your portfolio, consider selling them now to free up cash that can be redeployed into opportunistic deals when a recession takes hold.
Another way to preserve liquidity is by minimizing the debt you have on your existing assets. Properties with lower leverage tend to be at less risk of default in the wake of a severe recession.
Here at HLC Equity, a lot of the steps we’ve outlined above are things we do here as general practice—not just for recession or inflation protection. Nevertheless, they are important steps to take as we face a recession that is likely just over the horizon.
Of course, every recession has its own peculiarities that make it difficult to plan for. The COVID-induced downturn in 2020 was much different than the one we’re facing today. Back then, the market quickly ground to a halt. Banks stopped lending. The Federal Reserve cut interest rates to practically zero (to 0.02% in April of 2020!). Today, inflation is skyrocketing and interest rates are higher than they have been in more than 20 years. These conditions will make the impending recession arguably more challenging and limiting in terms of what owners can do—which is why it is more important than ever to try to get ahead of it now.
Are you interested in learning more about our investment philosophy? Contact us today to learn the many ways we work hard to protect investors’ downside.
HLC Equity, a multigenerational real estate investment management company, has announced the sale of Toscana Apartments, a highly amenitized 192-unit multifamily community located in Carrolton, Texas, a flourishing sub-market of Dallas. HLC acquired Toscana in 2017 for $13.25M and was able to deliver returns significantly above original projections to its investor partners and principals.
“When we originally purchased Toscana, we recognized the solid value proposition that the property offered given its strong location, and our ability to execute a value-add business plan. We are happy to have been able to deliver above market returns to our investors and to HLC Equity principals” said Daniel Farber, CEO of HLC Equity.
Upon acquiring the property, HLC Equity leaned into their 70+ year legacy of successful real estate investing and leveraged their direct-to-investor platform – HLC Direct – to generate a significant amount of investable capital. HLC Direct allows accredited investors to invest alongside HLC Equity principals in institutional level real estate investments which have historically delivered above average returns for the investment group. Investors who took part in Toscana experienced firsthand, the sizable financial upside of investing via HLC Direct.
“This is my second full circle deal with HLC Equity and both times they have far exceeded the initial return projections. Our experience investing with HLC Equity has been terrific. They provide consistent reporting and distributions, and we are very satisfied with the results. HLC Equity is unique in that their long track record and significant co-investment gives us confidence that we are investing alongside a highly professional group,” noted Joel J., an Executive in the Legal Services sector and investor with HLC Equity.
Toscana saw not only immense financial success but was also an operational powerhouse under the leadership of Dave Molitor, HLC Equity’s Head of Operations. Toscana’s average monthly occupancy rate was over 94%, including 99% at the time of sale. Rent growth rose 25% from acquisition to sale, while the price-per-door increased significantly during that same period. The results were both considerable growth in long-term equity, as well as critical monthly cashflow.
But this success didn’t come solely from the market – Molitor and team executed an intense and highly effective capital improvement program. The value-add included renovating over 25% of the units (generating $100+ rent premiums); installing low-flow water devices, reducing consumption by over 20% annually; resurfacing the pool and replacing all furniture; extensive landscaping and paving improvements; increased security by installing property-wide cameras and innovative access control via mobile app; and many other resident comforts and amenities.
Perhaps most notably, however, is that Toscana became the first property to implement Layers, HLC’s hybrid operating model offering both serviced and conventional apartments to the growing mid- to long-term rental market. HLC investors have come to value Layers properties due to the upside as well as its hedge against single offering apartments. At Toscana, the implementation of Layers yielded comparable occupancy (90%+), however generated a 20% net lift in rental revenue. Since Toscana, HLC’s other partner properties are also seeing Layers serviced apartments command significant premiums compared to traditional counterparts.
“Not only are we pleased to have exceeded our investment goals, but Toscana has also helped solidify the business case for our hybrid Layers model, showing that there is significant demand in the market for mid to long term serviced apartments in traditional multifamily assets,” remarked Farber.
HLC Equity’s portfolio remains strong in the Dallas Market, including a newly developed Class-A multifamily community called Southgate Apartments that HLC Equity acquired in Q2 of 2022.
“Dallas has consistently delivered strong returns and opportunity to HLC Equity and our investment partners and will continue to be a focal point as we look to acquire new properties and further expand our footprint,” added Farber.
HLC Equity sold the property to Beverly Hills-based Archway Equities, which was brokered by longtime broker partner Rob Key, JLL’s Managing Director of Dallas.
About HLC Equity (www.hlcequity.com)
HLC Equity is a multi-generational real estate investment management company, with over 70 years of experience and an expansive real estate portfolio. Their entrepreneurial spirit of a startup is juxtaposed with institutional level execution. HLC Equity utilizes its real estate portfolio to carry out its mission of building thriving communities. For more information, please visit www.hlcequity.com
For further press inquiries or interviews please contact press@hlcequity.com
See where this release was featured:
Interested in hearing more about HLC Equity and our investment opportunities?
HLC Equity, a multigenerational real estate investment management company, has announced the sale of Toscana Apartments, a highly amenitized 192-unit multifamily community located in Carrolton, Texas, a flourishing sub-market of Dallas. HLC acquired Toscana, in 2017 for $13.25M and was able to exceed their original projections by delivering a 26%* net IRR to its investor partners and principals.
“When we originally purchased Toscana, we recognized the solid value proposition that the property offered given its strong location, and our ability to execute a value-add business plan. We are happy to have been able to deliver above market returns to our investors and to HLC Equity principals” said Daniel Farber, CEO of HLC Equity.
Upon acquiring the property, HLC Equity leaned into their 70+ year legacy of successful real estate investing and leveraged their direct-to-investor platform – HLC Direct – to generate a significant amount of investable capital. HLC Direct allows accredited investors to invest alongside HLC Equity principals in institutional level real estate investments which have historically delivered above average returns for the investment group. Investors who took part in Toscana experienced firsthand, the sizable financial upside of investing via HLC Direct.
“This is my second full circle deal with HLC Equity and both times they have far exceeded the initial return projections. Our experience investing with HLC Equity has been terrific. They provide consistent reporting and distributions, and we are very satisfied with the results. HLC Equity is unique in that their long track record and significant co-investment gives us confidence that we are investing alongside a highly professional group,” noted Joel J., an Executive in the Legal Services sector and investor with HLC Equity.
Toscana saw not only immense financial success but was also an operational powerhouse under the leadership of Dave Molitor, HLC Equity’s Head of Operations. Toscana’s average monthly occupancy rate was over 94%, including 99% at the time of sale. Rent growth rose 25% from acquisition to sale, while the price-per-door jumped over 84% during that same period. The results were both considerable growth in long-term equity, as well as critical monthly cashflow.
But this success didn’t come solely from the market – Molitor and team executed an intense and highly effective capital improvement program. The value-add included renovating over 25% of the units (generating $100+ rent premiums); installing low-flow water devices, reducing consumption by over 20% annually; resurfacing the pool and replacing all furniture; extensive landscaping and paving improvements; increased security by installing property-wide cameras and innovative access control via mobile app; and many other resident comforts and amenities.
Perhaps most notably, however, is that Toscana became the first property to implement Layers, HLC’s hybrid operating model offering both serviced and conventional apartments to the growing mid- to long-term rental market. HLC investors have come to value Layers properties due to the upside as well as its hedge against single offering apartments. At Toscana, the implementation of Layers yielded comparable occupancy (90%+), however generated a 20% net lift in rental revenue. Since Toscana, HLC’s other partner properties are also seeing Layers serviced apartments command significant premiums compared to traditional counterparts.
“Not only are we pleased to have exceeded our investment goals, but Toscana has also helped solidify the business case for our hybrid Layers model, showing that there is significant demand in the market for mid to long term serviced apartments in traditional multifamily assets,” remarked Farber.
HLC Equity’s portfolio remains strong in the Dallas Market, including a newly developed Class-A multifamily community called Southgate Apartments that HLC Equity acquired in Q2 of 2022.
“Dallas has consistently delivered strong returns and opportunity to HLC Equity and our investment partners and will continue to be a focal point as we look to acquire new properties and further expand our footprint,” added Farber.
HLC Equity sold the property to Beverly Hills-based Archway Equities, which was brokered by longtime broker partner Rob Key, JLL’s Managing Director of Dallas.
About HLC Equity (www.hlcequity.com)
HLC Equity is a multi-generational real estate investment management company, with over 70 years of experience and an expansive real estate portfolio. Their entrepreneurial spirit of a startup is juxtaposed with institutional level execution. HLC Equity utilizes its real estate portfolio to carry out its mission of building thriving communities. For more information, please visit www.hlcequity.com
For further press inquiries or interviews please contact press@hlcequity.com
*Returns are unaudited
See where this release was featured:
What is a “Cap Rate”?
A property’s “cap rate” refers to its capitalization rate. It is one of the most common metrics investors use to analyze a deal’s potential profitability. It looks at the ratio between net operating income and purchase price.
Cap Rate = Net Operating Income / Purchase Price
Cap rates are expressed as a percentage, generally ranging somewhere between 3% to 15% or more.
A property’s cap rate will usually have an inverse relationship to its value. The lower the cap rate, the more valuable the property and vice versa.
How do Cap Rates Impact Values?
Cap rates are a way to value a property’s relative investment return as compared to other investments. For example, annual yields on 10-Year U.S. Treasury bonds had been hovering around 1.5% for several years. Real estate investors who were buying properties at a 5-cap were buying at a 3.5% spread over the Treasury bonds.
As inflation rises, and the rate for relatively risk-free Treasury bonds increases, one would expect cap rates to climb. If the rates for U.S. Treasury bonds are in the 3% range, investors will expect to earn a higher return on “riskier” real estate investments. In theory, we would expect this to push cap rates into the 6-7% range or higher (depending on the asset quality, geography, etc.).
Given the inverse relationship between cap rates and values, this should (again in theory), cause real estate values to come down.
And yet, multifamily property values continue to rise. This is a result of ongoing cap rate compression, something we discuss in more detail below.
What is Cap Rate Compression?
Cap rate compression is a term that refers to what happens when the cap rate for a specific property (or group of properties, like multifamily) is lower than what it has been historically. Cap rate compression is therefore the downward pressure on cap rates, which in turn increases property values.
For example, let’s say you have an apartment building that produces $500,000 in net operating income (NOI). The market cap rate for where the property is located is a 7-cap. The building would be work approximately $7.14 million ($500,000 / 0.07).
Now, let’s say the cap rate comes down to 6%. Assuming NOI remains the same, that same building would now be worth $8.33 million ($500,000 / 0.06). That makes the property worth nearly $1.2 million more without any other material change to the property.
What’s Driving Multifamily Cap Rate Compression?
There are several factors driving multifamily cap rate compression. Much of the compression is a result of the low-interest rate environment that we’ve been in for several years. Typically, rising interest rates will push up mortgage costs, creating downward pressure on property prices.
Interest rates are only now starting to rise, something that may have an impact on cap rates—but may not, depending on several other factors, such as:
- Rising inflation. Multifamily properties tend to perform well in an inflationary environment. This is partially because of the typical 1-year lease structure. Unlike commercial properties that utilize longer-term leases, multifamily properties tend to lease apartments on an annual basis. As leases roll, owners will often increase rents to cover at least the costs associated with rising inflation.
In turn, many investors will often pay more for multifamily properties – i.e., buy them at a lower cap rate – as cash flows and rents in residential real estate are expected to grow year-over-year, especially in an inflationary environment.
- Cost escalation. Labor and material shortages were already becoming widespread pre-pandemic and have only become more pronounced since then. This is causing as-built properties to surge in value because investors feel it’s becoming more advantageous to purchase an existing property than it is to invest in ground-up development.
- Strong investor sentiment. Real estate has typically been considered an alternative asset class, but recently, it has moved into the mainstream. Now, investors of all sizes (individuals, institutions, and more recently, accredited investors with Direct-to-Investor platforms such as HLC Direct) are pouring record capital into the sector. There is especially strong demand for multifamily housing, considered one of the most accessible product types within the CRE sector.
- Higher mortgage rates. While higher mortgage rates can create downward pressure on CRE values, in some cases, they can benefit multifamily investors. This is because higher mortgage rates make it more difficult for would-be buyers to purchase their own homes. Those now priced out of the market will instead turn toward multifamily (as well as single-family rentals and built-to-rent units), which creates more competition for these rentals and in turn, drives prices up. As rents increase, property NOI increases, and therefore even if cap rates rise slightly, it does not necessarily offset the gains made from the increased revenue.
- Rising rents. In many markets, rents have been increasing at a double-digit pace for the past two years. Higher rents mean higher NOI, something that in turn can push cap rates lower. While higher rents directly increase revenue and NOI, the result may also offset any decrease in cap rates.
Is Cap Rate Compression a Good Thing?
Cap rate compression is not necessarily good or bad—it depends on an individual’s outlook and investment strategy. Typically, the longer someone owns a multifamily asset, the more cash flow it will generate as rents inherently rise over time. This will result in a higher cap rate relative to what they paid for the property.
Therefore, cap rate compression can be considered a good thing for existing owners: as cap rates compress, property values increase. Cap rate compression can result in massive gains for a property owner. The more equity someone has in a property, the more of a safety net they have to hedge against rising inflation.
One thing to consider regarding cap rates are their correlation to another factor making front page news lately: interest rates and the cost of debt. When a low interest rate climate starts to experience rising rates, all things being equal, it will cause a similar increase in cap rates which, as discussed before, will cause a reduction in asset values.
Cap rate compression only starts to become a problem if it accelerates to the point where purchasing a multifamily property no longer makes sense—i.e., the yield shrinks so far that the deal no longer pencils out.
Similarly, cap rate compression becomes a problem when the cap rate spreads in smaller secondary and tertiary markets begin to close in on primary markets. In situations like these, there is a risk premium that buyers are not factoring into the price when cap rates are the same or close to a smaller, less liquid market. In primary markets, institutional investors are buying very competitively, pushing a lot of investors to the secondary and tertiary markets, which compounds the problem as the cap rates in these markets compress further as well.
It is important for investors to monitor the cap rate environment closely. Maximizing every dollar from a project’s budget becomes more critical in a low cap rate environment. Multifamily owners and operators need to be sure they are maximizing NOI in order to maintain the property’s value, especially if they purchased that property at a premium.
By all indications, we remain confident that multifamily properties will continue to hold their values for some time. In fact, cap rate compression might continue given the nation’s prolonged housing shortage.
These are trends that we will continue to watch closely to ensure we are maximizing returns for our investors.
Interested in learning more? Contact us today!
Pittsburgh, PA, (July 29, 2022) – HLC Equity, a multi-generational real estate owner and operator, has announced the hiring of two members of their leadership team to help further the firm’s growth.
Jon Wohlfert, a 35-year veteran of the alternative accommodations industry, will serve as Managing Director of Layers, HLC’s real estate property management and operating model which offers both serviced and conventional apartments. Prior to joining HLC Equity, Jon held executive leaderships roles at Residence Inn, Summerfield Suites, BridgeStreet Global Hospitality, Extended Stay America, WaterWalk Hotel Apartments and Reside Worldwide. In the new role, Jon is creating partnerships with multifamily owners and operators to grow the existing Layers serviced apartment brand, which targets the mid to long term renters seeking furnished apartment options. “I’m excited to build on the success HLC Equity is having with the Layers brand in their portfolio. The Layers product helps fill the gap that currently exists for professionally managed, midscale, flexible furnished apartments while allowing real estate owners to earn higher risk adjusted returns through the premiums serviced apartments generate,” said Mr. Wohlfert.
Kevin Aschman, joins the team as HLC Equity’s Director of Marketing, a new role whose focus is to lead the strategic planning and tactical execution of marketing and growth. Prior to HLC, Kevin served as SVP of Marketing for DLP Capital and Patch of Land, both private real estate investment and financial services companies. “The legacy and heritage that HLC has developed over the decades, combined with the highly dynamic and energetic nature of the team is a perfect recipe for growth. I’m eager to leverage my experience to help HLC reach their goals and become a household name in the real estate investment space.” remarked Mr. Aschman.
HLC Equity has seen accelerated growth since transitioning from a private holding group into an institutional level sponsor of multifamily investment opportunities. In 2021 alone, HLC created new roles to enhance growth – including positions in acquisitions, investor relations, and asset management. HLC will continue its focus on expanding their portfolio of investments, delivering great returns and experiences for its investors, and creating thriving communities.
“People have always been at the core of our firm, and have been fundamental to our growth, spanning from our very beginning decades ago, and into today in our more recent pursuits of growth,” said Daniel Farber, CEO of HLC Equity. “We are excited to have both Jon and Kevin join our leadership team. We feel strongly that their decades of experience in their respective fields will be a terrific boost to our company, add to our company’s financial performance, and further push us towards our company’s purpose of creating thriving communities.”
About HLC Equity (www.hlcequity.com)
HLC Equity is a multigenerational company, with over 70 years of experience and an expansive real estate portfolio. Their entrepreneurial spirit of a startup is juxtaposed with institutional level execution. HLC Equity utilizes its real estate portfolio to carry out its mission of building thriving communities. Through HLC Equity’s Layers brand, the company employs a hybrid management approach to deliver above market returns. Through HLC Equity’s HLC Direct platform, the company offers accredited investors the opportunity to invest in institutional assets right alongside the company principals.
The real estate industry is one of the world’s oldest. Since the dawn of time, land has traded hands using various mechanisms for purchase or sale. While the real estate sales process has certainly evolved over time, most of the transactions completed over the past few decades have been handled in a traditional manner. Brokers and attorneys helped arrange the transaction on behalf of buyers, with generally risk-averse lenders providing the debt needed to finance the deal.
The ”traditional” way of doing things kept the barriers to entry relatively high. Only a select group of people have had access to some of the best investment opportunities as a result.
Today, digital transformations are opening the door to investors of all kinds. In this article, we look at how various technologies are changing consumer behaviors and in turn, shaking up the industry before our very eyes.
What is “digital transformation”?
Digital transformation is the process of restructuring an entire organization around a digital approach. It forces companies to rethink their entire business model, supply and value chains, and operational structures. These changes are not just found on the corporate side – it has also shifted consumer behavior as well.
Most companies began adopting digital technologies more than two decades ago. However, only recently have companies begun reshaping their entire business around today’s digital world.
While many of these activities seem obvious today, we question whether current market measurement metrics used by economists accurately factor in the various transformations that have occurred. As an example, during the last housing crisis, companies like Zillow were just emerging, and much less accessible/accepted by the masses. Have economists properly factored in these digital transformations? Can we look at the current reality through an old lens? To explore this topic, we start with 5 major digital transformations impacting real estate today.
The Top 5 Digital Transformations Impacting Real Estate Today
There are many ways in which technology is impacting the real estate market. Here are 5 specific digital transformations that we’re watching closely:
1) Access to Big Data
The rise of big data is transforming every aspect of the real estate market. Consumers can now easily navigate websites like Zillow or CoStar to find properties for sale. With the click of a button, people can look for properties based on finely-tuned criteria: product type, square footage, land area, proximity to transit, cap rates, and more. They can then look at how one property compares to others based on recent comps—again, with recent sales data now readily available from the comfort of a person’s home. Historically, this information was held closely by only a select number of brokers. Those who wanted access to this data had to sift through paper files at the Registry of Deeds or rely on otherwise incomplete information.
Big data can also be used by real estate developers. They can easily assess not only where to build, but what amenities potential residents would like in their buildings. They can also decipher how much a person is willing to pay for those amenities, and can conduct a robust cost/benefit analysis when making capital improvement decisions.
A third way big data is impacting the real estate industry pertains to operations. Smart home technology, the rise of “PropTech” and other innovations provide robust data about a building’s or management team’s performance. For example, on the building side, we can look at energy consumption patterns and make more informed decisions about property upgrades that would lower utility costs. On the management side, we can compare one property’s leasing velocity to another to determine the effectiveness of the team’s marketing strategy.
2) Faster Transaction Cycles
The real estate transaction process is notoriously slow. At least, that used to be the case. Today, big data allows people to make decisions faster. Once they’re ready to move, they can do so faster given the rise of various digital technologies. For example, real estate offers to purchase and letters of intent can be signed and submitted electronically. Deposits can be wired instantly. Loans can be originated quickly, with lenders able to review digital files faster than their paper counterparts. Documents can be signed and notarized in a matter of minutes. In some cases, documents can be generated automatically.
The digitization of the real estate transaction process allows people to buy and sell properties faster than ever before. In most instances, this proves to be beneficial. On the other hand, it forces prospective buyers to act quickly. This can shorten the traditional due diligence process, something that increases risks for those who do not know how to evaluate deals quickly, efficiently and with a close eye on the details.
3) Rise of Social Media Influencers
Social media has had a significant impact on the way consumers, including real estate investors, spend their money. The rise of social media “influencers” – people who have large followings and who are often paid to advertise products – is already being felt in the real estate industry.
For example, an entrepreneur with a large social media following might showcase tutorials on how they’ve flipped homes for a profit. They’ll talk about how they find deals, make quick and relatively inexpensive improvements, and then sell to someone else looking for a long-term hold. This strategy is attractive to many young, first-time investors who may feel compelled to embark on the same path with the hope of earning a quick profit. However, as any real estate professional knows, house flipping is NOT easy. There are many risks and unknowns that can cripple an investor who is unprepared to handle unforeseen obstacles.
Most of today’s social media influencers are also very young. They have not yet endured the ups and downs of a typical real estate cycle. Therefore, it is easy for them to “sell” real estate investments, training courses or other real estate products to their followers—because on paper, they’ve done well during this latest real estate boom. They can push their followers to invest in a deal at a 2% cap rate because after all, “prices will just continue to rise.” Until they don’t. Eventually, there will be a market correction (who knows when is anyone’s guess). When this time comes, people who invested in marginally lucrative deals may regret not investing with a more seasoned real estate sponsor.
4) Proliferation of Real Estate Crowdfunding Platforms
Changes to federal legislation have made it easier than ever for sponsors to raise capital for their real estate deals. Previously, sponsors could only raise money from accredited investors with whom they had a pre-existing relationship. They were not allowed to engage in “general solicitation,” i.e. – online advertising. The 2012 JOBS Act changed all of that and in turn, led to the proliferation of real estate crowdfunding platforms.
Today, real estate sponsors can advertise their deals on many platforms to amplify exposure. These platforms provide a way for sponsors to raise both debt and equity, for individual deals as well as for funds that then invest in an array of real estate deals. Individuals can then fractionally invest in deals alongside those sponsors with as little as $10,000. Some platforms require investors to be accredited; others do not. Oftentimes, whether someone needs to be an accredited investor depends on the sponsor and the specific opportunity.
In theory, the proliferation of real estate crowdfunding platforms is good for consumers. People now have access to investment opportunities they never would have uncovered otherwise.
Yet these platforms also have some shortcomings that investors need to be cognizant of. For example, most of these platforms are simply software solutions for real estate marketing. The platform acts as a “middle man” that earns money through the fees they charge sponsors in exchange for featuring their deals. While most RE crowdfunding platforms provide some initial due diligence on every deal, there is no guarantee that these deals have been fully vetted with any rigor. Some platforms are structured to prioritize transaction volume, which can lead to shoddy underwriting and due diligence in turn.
That notwithstanding, crowdfunding platforms have still earned their place in today’s real estate industry. Investors should simply be aware of the capabilities and services offered by each platform. They should still do their own due diligence, as well. When in doubt, investors may want to invest alongside a seasoned owner/operator that has a track record extending back prior to the advent of online crowdfunding.
5) Blockchain and Cryptocurrency
When it comes to blockchain and cryptocurrency utilization in real estate, we are still in the nascent stages. However, we expect to see more robust adoption of these digital technologies in the years to come.
Blockchain platforms have the potential to both accelerate transaction speed as well as reduce the risk of transaction fraud. As blockchain becomes more prevalent, we will be able to use blockchain to access a property’s entire sales history with remarkable accuracy.
Blockchain can also be used to create smart contracts that are highly secure and cannot be modified. Smart contracts are usually the precursor to the exchange of virtual currency, like Bitcoin. The details of these contracts then live within the blockchain and will be tied to the property’s other stored information (including but not limited to land surveys, appraisals, architectural drawings and more).
According to a recent study by Deloitte, blockchain-based contracts have the potential to eliminate the need for third-party intermediaries (brokers, attorneys, etc.) altogether. This would result in significant cost savings for commercial real estate investors and developers.
Cryptocurency will have a similar impact on the real estate industry. People can transfer money faster and more securely than they could using the traditional banking system.
Cryptocurrency may also allow for properties to be tokenized and exchanged for a fiat currency – a new fractional ownership model that is just now starting to emerge.
There’s been a lot of speculation that we’re in a real estate bubble that is about to burst. There are some similarities between the economy today and the economy leading up to prior recessions. However, it is important to bear in mind that today’s economy looks much different than the economies of yesteryear. Digital transformations like those featured here today are fundamentally reshaping the real estate industry, the impact of which we believe economists may be underestimating These digital transformations make it difficult to make an apples-to-apples comparison of today’s market to that of years past.
If nothing else, today’s CRE owners and operators have more data at their fingertips and using that data, they can leverage a variety of new technologies to respond to changing market conditions in real-time.
Follow along with us as we explore these various transformations in our series on Digital Transformations within the commercial real estate market.
To learn more about HLC Equity’s approach to digital transformation, contact us today!
The recent stock market volatility, soaring inflation, and run-up in home prices have many economists speculating that a recession is on the horizon. This assumption is based on the precursors to prior recessions, many of which we’re experiencing today.
However, analysts who use history as a benchmark for today’s economy are overlooking the fact that the drivers of economic growth have changed over the past 15 years. Namely, the rapid digitization of information has transformed how goods and services are marketed and sold. The rise of Instagram influencers and the ability to leverage low-cost, overseas talent are just two examples of how digitization is impacting economic growth.
In this article, we look at the many ways in which digital transformations may be artificially bolstering the economy, which in turn, influences which indicators may be used to predict future recessions.
What is “digitization”?
Digitization is simply the process of converting information into a digital (e.g., computer-readable) format. Digitization is made possible by what is often referred to as “information and communications technology,” or ICT. ICT is an umbrella term that refers to the integration of telecommunications and computers—including hardware and software, middleware, storage and audiovisuals—that enables users to access, store, transmit, understand and manipulate information.
The impact of digitization is having a profound effect on economic growth and development, not only here in the United States, but all across the world.
4 Ways Digitization Impacts Business Growth
The ways in which digitization impacts the economy continue to evolve. According to a report by the World Economic Forum, as an economy’s digitization increases, its productivity improves. “Some jobs get replaced by technology, and lower-value-added, labor-intensive tasks go overseas to emerging markets where labor is cheaper,” the report notes.
Specifically, digitization is impacting business sectors in four ways:
- Business formation: Digitization is lowering barriers to entry and expanding market reach for enterprises. For example, companies that once relied on local consumers can now leverage social media to expand their reach globally. Service providers can similarly leverage technologies like Zoom and Microsoft Teams to connect with potential clients in different time zones and all around the world. Businesses that would not have otherwise been viable due to limited market reach now have endless opportunities. In many instances, digitization has allowed individuals to test their business models prior to jumping all-in to a new enterprise.
- Go-to-market strategies: Digitization has fundamentally changed how companies build brands, communicate their values, and market their goods and services to customers. Through strategic advertising, businesses can reach new audiences using various online platforms. The resulting explosion of e-commerce has been transformative to how products are sold.
- Production: Digital transformations have also impacted how and where businesses produce various goods and services. For example, many companies now outsource jobs to people living overseas. There could be several reasons for this: in some cases, lower-skilled work can be outsourced to lower-paid workers abroad using platforms like Upwork and Fiverr.
In other cases, there is value in having people work “off-hours” to quickly turn around work for clients located in the U.S. An architect, for example, may receive feedback from a client during the day, and then that feedback can go to designers abroad who can make changes to renderings overnight, allowing the architect to deliver the changes sooner than if they were relying on their local team alone.
In any event, the ability to outsource the production of goods and services has the impact of making today’s businesses more profitable than they would have been in a non-digital era.
- Operations: According to the World Economic Forum study, “digitization has had the greatest impact on the way companies organize and operate to generate competitive advantage.” While a growing number of workers were starting to telecommute pre-Covid, the pandemic accelerated this shift in how and where people work. Today, many companies are saving money by closing physical offices, instead opting to have their teams work remotely. Many back-office roles are being shifted to remote workers in lower-cost regions, which also boosts a company’s bottom line.
Other Profound Economic Shifts Enabled by Digitization
While the impact digitization has had on business growth and development cannot be overlooked, there are other ways in which new technologies are bolstering the economy in ways never seen before. Here are a few examples of how this has taken shape.
- The proliferation of cryptocurrency. “Digital assets” like Bitcoin and Ethereum, have exploded in popularity among users and investors alike. In November 2016, non-state issued digital assets had a market cap of $14 billion. By November 2021, this had skyrocketed to over $3 trillion. Many entrepreneurs reportedly utilize cryptocurrency as a means of accessing international markets and conducting business quickly and with ease. During the last three months of 2020, there were an average of 287,000 confirmed Bitcoin transactions per day worldwide.
On the investment front, cryptocurrency has made some ordinary individuals millionaires (even billionaires) almost overnight. In other instances, people have lost their life’s savings by gambling on an otherwise unregulated, “underground” monetary system.
- The rise of the “creator economy”. The Kardashians are probably the most famous for being “famous” – a skill they have since transformed into actual multi-million-dollar brands. The rapid adoption of social media, from Instagram to Snapchat to TikTok, has created a new era of “social media influencers.” These influencers are the primary driver of the “creator economy,” an economic classification that did not exist a decade ago. The creator economy, which refers to anyone who uses online media to monetize their content online, has helped ordinary individuals earn six-figure (and beyond) incomes by advertising to their followers. The creator economy also includes fashion bloggers, live-streaming games and other people who have gone on to build actual companies around their online “influencer” brands. An estimated 50 million people worldwide consider themselves “creators” according to a recent study—a number that continues to grow at a rapid pace.
- The “Robinhood effect” on the stock market. It used to be that individuals would invest in their traditional, employer-sponsored 401k plan and otherwise, engaged in very little stock trading. Until recently, most platforms (Scottrade, Fidelity and others) would charge a $7-10 fee for each trade, which inherently limited the amount of trading amateurs did. The advent of Robinhood, a platform that offers free trades with no minimum account deposit, radically disrupted the market. Now, curious traders could experiment with nominal dollars and with relative ease.
The widespread utilization of Robinhood among retail investors has allowed these individuals, collectively, to have a dramatic impact on the stock market. The GameStop saga is one of the most notable instances of this: users from the Reddit page “wallstreetbets” gobbled up stock from GameStop, an otherwise floundering video game chain, which sent the price soaring from $20 to over $300 per share. Institutional investors who had bet against the company were forced into a “short squeeze,” where they were forced to repurchase stock as the prices rose.
While a short squeeze is not unheard of, the fact that it was driven by retail investors using new technology and novel trading platforms forced Wall Street to pay attention to retail investors like never before. It became clear that the actions of individuals could, collectively, have a dramatic impact on the stock market. One analysis found that retail investors were indeed a driving force behind the stock market’s second-quarter rally in 2020. The impact on small-cap businesses was especially profound. “Robinhood demand accounted for 20% of the aggregate market capitalization of the [smallest 20% of stocks in the U.S. market], the study found.
In short, the Robinhood effect is expected to cause the stock market to act more erratically than ever before, with small-cap companies expected to face the most volatility.
So, what are we supposed to make of all this? One could argue that these digital transformations are artificially bolstering the economy—therefore making a large-scale recession less likely due to their strengthening of the economy in a way that we have never experienced. Alternatively, one could argue that their fast-paced nature could not only create economic mayhem, but they could potentially create unprecedented distress in the market. One could also argue that there’s nothing “artificial” about these transformations at all. Digitization and the growing utilization of social media, cryptocurrency and other ICTs is simply creating new opportunities for businesses to form, grow and thrive. The drivers may be different than in decades past, but this could be looked at as an evolution of business rather than an artificial bolstering of those businesses.
Time will tell, and nobody has a crystal ball, however, we feel that it is important for investors, economists, and other pundits to recognize that today’s economy is vastly different than any other economy that we have experienced. Historical ways of analyzing economic growth and downturns are outdated and have become less accurate when factoring in the extensive shifts that have occurred over the past 15 years because of digitization. We must be careful not to over-rely on history when trying to benchmark what to expect out of future downturns.