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Investing when you face supply constraints

Residential real estate prices are hitting record highs, even with interest rates still up. How is this possible?

Homes haven’t gotten nicer. Prices are up because people aren’t selling. Without available inventory, the market is illiquid. 

Usually, when people think of illiquid markets, they worry about inability to find a buyer and having to sell their property for a loss. This does happen, but market illiquidity can work in either direction. Knowing whether the market favors buyers or sellers is crucial.

Currently, there are fewer houses for sale and prices always reflect supply and demand. The same dynamics apply in commercial real estate, perhaps even more so. But the question of a buyer’s or seller’s market is local.

All real estate is hyper local, and commercial real estate even more so. A family has many choices of where to live, but businesses have a smaller menu of options. A medical practice needs a particular kind of building in a particular geographic area, for example.

These illiquid markets are tricky to navigate, but they also have a lot of opportunity. Knowing when to buy and when to sell is the key, and Alliance excels at this. 

The Alliance team is great at assessing what inventory is available, and what inventory will be available in the future. Not every property is on the market at the same time, so we aren’t comparing properties against everything in a region. We’re focused on those that are on the market, or could be on the market in the near to medium term.

There are only so many good locations. But properties can also be repurposed. On the flip side, a particular area can get oversaturated. The market can only bear so many gas stations at a particular intersection or grocery stores in a neighborhood.

Illiquid markets offer an advantage to the investor who keeps the flexibility to take the better side of the deal. Alliance does this by maintaining a strong network of equity investors and never over-leveraging. This way, we have the capital to buy when it’s a buyer’s market and we’re never forced to sell. We build our great returns on this strong financial foundation.

As always, understanding supply and demand is the name of the game. Alliance does this as well as anybody in the market, and that means we can make illiquid markets work for us.

Ben Reinberg
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