Source: Morgan Stanley

Most other housing analysts still expect U.S. house prices to rise a modest single-digit amount in 2024. This includes forecasts by:

• Mortgage Bankers Association: +4.1%
• Fannie Mae: +2.4%
• Wells Fargo: +2.5%
• Goldman Sachs: +0.6%
• AEI Housing Center: +4.0%
• CoreLogic: +2.6%
• Zillow: 0.0%

With all the experts forecasting in such a narrow range, we agree that most markets will hold steady and desirable areas will see normal appreciation of a few percentage points for most areas in California.  Our core markets of Los Angeles, Orange and San Diego counties may see more elevated appreciation rates.

Multifamily, the largest pool of assets securing our trust deeds, is holding strong and continues to perform well. Although rent growth has slowed, the vacancy rate has remained roughly 5% throughout 2023. Current interest rates will likely keep mortgage rates up near or above 7%, continuing to price out would-be homebuyers and sustaining the multifamily rental market demand. The only notable concern is the lack of demand for luxury apartments. They may be easy to build, but they’re not necessarily easy to occupy. As a result, many high-end apartments have reduced rents and offered concessions to attract residents.  The good news is that these large, luxury developments are usually 70-units or more and Coastal Capital is not a viable financing partner due to the needed financing amount.

Commercial real estate trends continue to be a mixed bag across market segments.  The office building vacancy rate reached 19.2% in Q3 according to Moody’s Analytics. That’s up from Q2 and approaching the historic peak of 19.3%. Despite these headwinds for office, it’s important to remember that while there is and will continue to be obsolete office, the office is not obsolete.  Older, less-desirable Class B and C offices may face obsolescence, but Class A is booming. Employers, especially tech, are realizing that they must upgrade to attract workers to return to office.  Many are going with downsizing from Class B and paying more per square foot for newer offices but a less total monthly lease cost.

Industrial continues to perform well, especially cold-storage properties, but the signs of softening are starting to show. The asset class may be moderating as the post-pandemic demand for more inventory decreases and renters hold off on expansion due to uncertainty of how rising interest rates will affect their business.  One highlight we are hearing in this market segment is re-shoring and nearshoring efforts are gaining traction in manufacturing and may provide a further boost for the sector.

Retail remains strong considering 85% of all shopping is still done at the retail locations.  The American Dream is still alive and well throughout California.  New entrepreneurs are constantly trying new restaurant menus, peddling innovative gadgets, and testing new ways to bring value with unique services.  Unless a major recession hit (which is not currently in the forecast) we expect to see slow and steady growth in this segment.

With national and regional banks tight credit standards the demand for the Fund’s short-term, business-purpose financing product continues to be in high demand.  If our pool of capital was even five-fold larger we would have no issues in deploying capital into high-quality deals.  Small business owners continue to request financing to grow their businesses, launch new locations or smooth out a cashflow issue.  Landlords continue to access the equity built up in their properties to complete renovations on existing properties to raise rents and increase cashflow from their units in the long term.  We expect both drivers of demand for our trust deeds to persist in the short-, medium- and long-term horizons.

Thank you to all our existing partners who have been referring over friends & family to join us.  Please note that our initial minimum investment is $100,000; however existing partners in the Fund can add on in any amount of $2,500 or more.