Market Update - March 2023
We hope this email finds you well. Unless you’re a current LP, who have been receiving Monthly Updates / Distribution Notices, it has been a few months since we were last in touch. Much of that is because underlying acquisitions for new investment offerings have been hard to come by in the current environment. Yesterday’s hawkish comments by FED Chairman Powell makes near-term deal flow look even more bleak by stating the Fed Funds rate would be higher than previously expected. What does that mean for the Real Estate industry? Transaction volume will continue its downward trend for the foreseeable future. CoStar recently published a graph showing Sales activity since 2011:
Sales activity has not been this slow since the GFC. We continue to see seller pricing expectations 20% - 40% above current realistic pricing. At some point there will be a shift in the seller expectations as the RE industry returns to normal, but it is anyone's guess when there will be symmetry in the market.
Since the market has slowed down drastically, we have spent countless hours fine tuning the operations of our existing facilities and have begun pursuing expansion opportunities at high performing facilities. A few notes:
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RuCo Offerings:
- High Yield debt offerings to fund the expansion across our portfolio. The thought process here is to raise debt capital to fund expansions. This financing would be second lien to subject facilities without diluting the equity positions of the original investors. We would only pursue this type of offering (& projects) at properties that have the cash flow to support taking on an additional note and demand supports additional inventory. More to follow on this in the coming weeks.
- Examples of some of the projects we completed in the past in the form of Twitter threads:
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Operations:
- Improved our Local manager program by adding local managers as part-time W-2 employees
- Improved revenue management and rate management across the portfolio
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Portfolio Update:
- Occupancy (Portfolio): 80.2%
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Rent PSF (Average):
- NCC 10x10: $0.92
- CC 10x10: $1.32
- Same Store YoY Revenues: Up 30.7% Feb 2023 over Feb 2022
- Same Store YoY NOI: Up 30.6% Feb 2023 over Feb 2022
In conclusion, our team has underwritten more deals in the last 3 - 6 months, than it did the full year before. We are standing at the ready to capitalize opportunities whenever the market rolls over and bid/ask spreads contract to an equilibrium.
All the best,
The RuCo Team
Rudolph Companies ("RuCo")
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