I recently listened in on David Linneman's conversation with friend and partner Gary Lipsky on the 2025 Economic & Real Estate Outlook. Most of it was positive, but I questioned a few things—particularly inflation data and the spike in insurance costs. But it was not my place to butt in.
Nonetheless, here are a few key takeaways.
Economic Growth and Recovery: Where Are We Now?
✔ We're still recovering from shutting down the economy five years ago.
This was a point I completely agreed with—you cannot shut down the world's economies for months and not suffer repercussions. Residential real estate has increased 50% - since mid-2020.
✔ GDP growth is projected between 2.5%-2.9%, with 2.1M new jobs expected.
That solid growth should fuel housing and commercial real estate demand. Slowly, we are recovering.
✔ Inflation is reportedly low—excluding shelter and owner-equivalent rent.
Linneman cited that Inflation (excluding housing) has been around 1% for the last year.
Given the sticker shock on groceries, gas, and almost everything else, I found this hard to believe. The other weekend, I went to buy some steaks, and they were $30/lb for some ribeyes. I asked if the chef was included. I was a little tired of overpaying for meals on a recent family road trip, so I thought I would give my wallet a break and get a cheap breakfast for a family of four—$90 bucks. I guess the Denny's GrandSlam is no longer $6.
The Fed, Interest Rates, and Investment Outlook
✔ A 100 bps rate cut is expected in 2025.
That's excellent news for borrowers, real estate investors, and developers struggling with high-interest costs. This contradicts the narrative that the new administration's policies will be inflationary and cause rates to rise. If Inflation is under control, as cited above, it should bring some welcome relief.
✔ Multifamily remains a substantial investment—but cash flow isn't automatic.
Apartments typically offer stable cash flow and low NOI volatility, but operators must get creative in this high-interest, high-insurance, high-tax environment.
For the past few years, we have focused primarily on tax abatement deals, which significantly reduce property taxes, thereby increasing cash flow, NOI, and value without the need for expensive renovations.
✔ Office properties with low debt could see a strong comeback.
With back-to-the-office gathering momentum, low-leverage office assets could present a major opportunity for those willing to take on some risk. To the chagrin of commuter-averse employees, employers are making the demand to come back to the office. Work-life balance was great while it lasted!
Insurance & Natural Disasters: A Lingering Challenge
✔ The spike in insurance costs is tied to high home prices… but what about multifamily?
Linneman suggested that higher home prices drive higher insurance, which makes sense, but I questioned why insurance remains elevated in multifamily, where values have declined. The hope is for increased competition and stabilization.
What's the Big Picture for 2025?
✔ Multifamily real estate will remain in demand due to the ever-increasing cost of homeownership and an eventual absorption supply of new multifamily units.
✔ Conditions will improve throughout 2025 and into 2026. As interest rates ease and lending markets reopen, real estate investors should see better opportunities.
The overall takeaway is that multifamily real estate will remain in demand due to the ever-increasing cost of home ownership and increasingly absorbed multifamily supply. Conditions will improve throughout 2025 and, most certainly, into 2026.
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