Let's just go out on a limb and say, yes, we're going to face a recession. After all, inflation hasn't shown itself to be transitory, supply chain issues both persist and feed off each other, and Russia's invasion of Ukraine has affected energy and food supply in Europe with ripples to the USA.
We're cheering for the Fed to get things right, but they haven't ever successfully brought significant inflation under control without causing a recession.
We like to expect the best -- and plan for the worst. There's no downside to anticipating a recession, and we'd love to be wrong about this. The big question is, "so, now what?"
The Fed's quantitative tightening play is going to unload about $9 trillion from its balance sheets. Of course there will be downward pressure on financial markets. What about real estate?
Real estate investing isn't a single space, and we don't anticipate recession fallout to be uniform. We don't know enough about the long-term cultural fallout of pandemic work from home to traditional office investments; it may be vulnerable. When, if ever, will traditional large retail malls return to favor? Rising interest rates will clearly put pressure on home buyers, yet will that be enough to counter the demand for housing that has been in undersupply since 2009?
We believe that properties which are most attractive to developers, obtained at the right price, will continue to be a safe haven for investors. Keeping debt to a minimum, and emphasizing off-market tracts will also help. As will the funding and timing flexibility to jump in with cash for a superior opportunity. The strategy is simple to state, albeit difficult to execute: obtain the right land, at the right price, with the right debt, often off-market, and with multiple clearly understood profitable exits. That is as recession -resistant an approach as we can imagine.
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