Transcript
Welcome everyone to disruptive 2026 real estate trends. This is an annual webinar. I am presenting it for the 10th consecutive time. It's datadriven. It's a chart heavy collection of um insights, eyepopping insights and it's going to help you make highquality investment decisions in this rather challenging real estate environment.
And it's going to help you focus focus on opportunities that this commercial real estate recession has created. Everything that you are going to hear about today is focused. It's actionable. It's tangible. There's no upsell.
There's no subscription. There's no higher tier. You probably don't even have a call to action, right? This is pure content and it's for fun and it's for learning. For those of you that don't know Grocapitus, we are quirky and opinionated amateur data scientists and technologists who buy and build large projects.
Our portfolio of 25 properties is worth about $500 million and about 1,300 datadriven slightly nerdy investors have trusted us with their money. Here's uh one half of our portfolio. We use data science to invest in eight different asset classes. multif family value add apartment new construction single family BTR forplex BTR student housing build to sell town homes self storage flex industrial and each of these different asset classes has taught us something different and hopefully made us better at our job which is to protect your equity and we've gone full cycle nine times on these projects with an overall IRRa internal rate of return of 33% and average annualized returns of 40% % across those nine exits. These are mind-blowing numbers, but to be honest, very honest, this track record was artificially boosted by extraordinary market conditions until 2022.
We do think that future performance is going to moderate to a more reasonable level. Here are two of those projects that we exited during that crazy time in 2021 and 2022. I mean, these numbers, they give you a sense of what's possible when the market is at its peak, right? Real estate has a lot of potential and this demonstrates that maximum peak potential. Our investors like what we're doing here is Chongz.
She is a super experienced investor and she compares us to other companies with more projects. You know, she thinks that we come out ahead. Take a quick look. Here's Brian who invested in one of our projects where we had to navigate through a very challenging COVID pandemic environment and we still ended up doubling his investment in four years. And then we're also able to offer him a 1031 exchange option at the end.
Okay. All right. Let's get the boring legal stuff out of the way because before we dive into the good stuff, right? So, this is just a friending to remind this webinar. It's for educational purposes only.
Just because we are sharing our personal opinions, it doesn't mean you're guaranteed to make a fortune in real estate. So, do your own research, consult professionals, and remember that investing in real estate is risky stuff. And don't be shy to type in your questions. We do our best to answer them at the end. Uh, and don't worry if you miss anything.
We'll be sending out a recording of this whole thing day after tomorrow. All right. Oh, I like the the little uh audio there. All right. All right.
So, this presentation always starts with a review of how the US economy did in the last year. After all, if the US economy isn't doing well, you're not going to make a lot of money in real estate. So, these two things are tied together. So, let's see how we did. So, I like this this graphic here, right?
Cuz it sort of shows some of the challenges that the economy faced in 2025. I felt like we were a bit of a race car economy, right? But we did have this one weird tire. And because of that tire, even though inflation was fairly flat, it was sticky, but it was flat. And oil prices were fairly low, which was awesome.
And consumer spending was pretty good, but despite all of this stuff, overall job creation was pretty bad, pretty awful, right? And so this spare tire, this big one here, might have something to do with that. Let's see how the global markets, the stock markets did in 2025. Here you can see all the different stock markets in the US of all the ma in in the world, all the major ones, right? Note that the US is this thick green line.
Now for the year, pretty much all of the markets did well, right? India's up 9%, China's up 16, the US is up 14, Japan's up 24%. And all of these markets plunged when the tariffs first came out, and that was in April. But over time, all of the markets recovered. So overall for the stock markets, 2025 was not a bad year at all.
We did have a bad year with the US dollar. Basically, the dollar lost 10% of its value. Even though we gained a couple hundred billion in tariff revenue, the value of the dollar declined, which pretty much made it even Stevens between the tariff between the dollar loss and the tariff gain. inflation. The inflation picture for the year was sort of an odd picture.
On the left side here, you can sort of see that in, you know, Feb and March, inflation was on its way downwards, all the way down to 2.3% in April. Yay. And then the tariffs hit each month after that. All the way to September, right? Inflation started to pick up primarily because of the tariffs.
Since then, it's sort of been flat. So that's I guess the good news. After going up to to three, it's sort of flattened out to about 2.7%. Both now and for the year. And what about growth?
Right, we use this measure called GDP, gross domestic product. In 2025, the US economy grew at 2.2%. Which was faster than all these other economies that you're seeing. So that's great. But keep in mind that the year before that, in 2024, we were at 2.8% growth.
So, our growth, while still pretty decent when you look at all these other countries, was definitely slowing down in 2025. Now, we ended up with this dramatic jobs stall towards the end of 2025. So, I'll leave it for you to read these snippets. They're from various interesting sources. Take a look.
But bottom line, job creation was extremely anemic, especially in the second half of 2025. What happened there? Note that the whole year wasn't like that, right? If you look at the jobs in the first four months of the year, 2025, this section on the left here, right? Looks pretty normal, right?
Nothing special, but nothing abnormal about the first four months. Then we announced the whole tariffs thing and take a look at what the rest of the year looks like. The economy simply couldn't decide whether it wanted more jobs or less jobs. And so for the year, we ended up with less than 600,000 jobs. That's a one decade low compared to the two million jobs that the economy produced the previous year before that in 2024.
My friend John Chank, I sit on various conference uh events with him. He works for Marcus and Milichap and he has some thoughts about why the job market weakened. Let's take a look. John, the weakening employment market isn't just being driven by tariffs. It's a combination of policy uncertainty, reduced immigration to the US together without migration, and the growth of AI, which is starting to boost worker productivity.
As of the second quarter of 2025, the most recent data available, productivity was up about 5.4% compared to the beginning of 2023. So the job creation tailwind that bolstered commercial real estate space demand over the last couple years is beginning to eb. Interesting. He basically is pointing out that productivity is increasing which means that worker that companies can get more work out of their employees and when they can get more work out of their employees they generally don't need more employees. So keep an eye on that.
All right, it's time to move on to section two because in the previous section, we looked at all of the different economic indicators, right? Jobs and inflation and GDP. Now, it's time to look at the forecasts for 2026. Let's look at the year ahead. What does it look like?
Let's dive into that. Here are some predictions for 2026. And these are from CBRE. There's lots of people that predict these. I like what CBR does, right?
Their GDP growth predictor is slowing just a tad bit from 2.2% last year, 2025 to 2% in 2026. So, not much of a difference. Unemployment is projected to tick up just a little bit from 4.3% to 4.5%. Once again, nothing to worry about. Inflation will continue to go down from 2.7% this year to about 2.5%.
Once again, pretty decent. and the Fed rate cut prediction. Well, they're projected to have another two rate cuts this year. All of these, all four of these are fine. Nothing, no problems here, except for this one here.
As you can see, this one is pretty darn bad because CBR is projecting only 0.3% job growth for 2026. So, now we're looking again at that bad 400,000 to 600,000 jobs for the year. pretty terrible number because the economy has more or less consistently been producing almost two million jobs a year. So this one here worries me a lot more and I wonder how much of it is tied to AI and that productivity boost that my friend John was talking about. Let's look at some growth projections, GDP growth, right?
And what I like about this chart that's interesting is that it's a projection of 2026. These are the four bars for 2026. And it's divided into four sections by colors. There are two things that are pulling job growth up up. And those are in green which are the tax cuts and in orange which are the um the lowering of interest rates.
So interest rates going down. So these two are boosting job growth, right? And then you've got two things that are dragging the economy down. The tariffs right here in this bluish, you know, chalky bluish gray and then the purple which is essentially the immigration effect. you know, if you kick more people out and don't bring any more immigrants in, that's going to have a negative impact on the economy, right?
Really, the biggest thing that's helping the economy is this, you know, this green effect, right? This um tax effect. And keep in mind that the impact almost certainly dies out by the end of 2026 right here because the tax cut impact always tends to be temporary. All right, our final prediction for 2026 is the unemployment rate and this is from the conference board. As you can imagine, we were producing very few jobs towards the end of last year.
So, unemployment ticked up a bit and we expect to continue ticking up and then maybe start to decline towards the second half of last year. No one seems to be projecting a recession, but people are projecting that unemployment will continue to increase slowly. All right, I'm done with all that dense economic stuff. Now for something much more interesting, real estate. Let's get to the business of forecasting both single family and multif family or apartment projection uh performance in 2026.
We've all heard about President Trump's desire to make real estate more affordable. And one of the interesting things that his administration is doing is this 401k thing. Let's take a look at this clip about what the administration is trying to do with using 401k funds to buy your home. Watch. >> Buying a home.
You know, it's part of the American dream, but it is so out of reach for so many people with the down payment being one of the biggest barriers. The Trump administration says a new plan would let you use your retirement funds penalty-free to get your house. But critics warn it's risky to borrow against your future. >> Now, White House economic adviser Kevin Hasset previewed this plan earlier this week. I should say on Friday.
He says down payments have doubled since the pandemic from 15K to over $30,000. A Realtor.com analysis says it now takes families about seven years to save that up. Twice as long as it did before. Here's Hasset explaining the idea on Fox News. Suppose that you put 10% down on a home and then you take uh 10% of the equity of the home and put it in as an asset in your 401k.
Then your 41k will grow over time as the value of your house grows. >> But here's the thing. Only about half of Americans even have a retirement account. >> So in chat, let me know what whether you think it's a good idea for us to be using our 401k to buy homes or it's a bad idea. If you tell me it's a bad idea, tell me why.
Go ahead. While you do that, um, that 401k thing that you just saw, it's not the only thing that the Trump administration wants to do when it comes to real estate. They're actually doing six different things apart from that 401k piece that's still proposed. I'm going to break these down, some of these down for you, right? Some are positive for real estate, some are negative for real estate.
I'll start with the one that has the biggest positive effect and that's something known as bonus depreciation. It allows you to take a truckload more depreciation the first year than you would normally be entitled to do you know tax benefits and that makes people want to invest in real estate. So this is definitely the biggest booster of real estate on this page. Next I'll point out that the immigration policy means that there are going to be labor shortages. Between a fourth and a third of all construction workers in the US are undocumented workers, which means as as you can imagine, there's now a shortage of these workers, which means less homes and less apartments can be built.
It's bad news if you're building homes, but it's good news if you're a landlord because that means over the next few years, we'll build less, which means existing homes will have greater value. The same applies to construction costs because of tariffs. The cost of building new homes and apartments is going up very quickly. So, we're likely to build less, which is good news for existing landlords as that will mean that rents will be stronger. Now, for the one that's creating some hype right down here, but is ultimately worthless.
It's useless. We've been told that the administration wants to ban, you know, Wall Street players from buying single family homes as renters. Just so you know, big buyers in the US have been buying less and less homes. For the last eight quarters, they've been next sellers. That means that they own less and less.
And even at their peak, they own less than 2% of all the homes in the US. This simply is not a great business model, and very few players are doing it. So banning them is not a big deal. I'm sure Trump will get political cuda points. Good for him.
But it's just not going to move the market. It's not going to move the needle. All right, I'm going to move on from Trumponomics and let's talk about where mortgage rates are likely to land in 2026. You know, all those smart groups are forecasting, all these groups, uh, they're forecasting where the rates go and they're in a very tight band this year, except for Fanny May, which is actually very bullish here on the left. The median is about 6.3%.
Right now, we're tad bit higher than that. In other words, what all of these smart people are saying is that mortgage rates are pretty much going to be the same in 2026 as they were in 2025, maybe just a tiny bit lower. All right, those were mortgage predictions, mortgage rate predictions. Now, let's talk about home price predictions in 2026. All these smart people think that home prices will go up with the exception of the Mortgage Bankers Association.
Everyone thinks there's going to be an increase, but they're all in a very tight band. And the median is a less than 2% increase in home prices. I think that the snail creeping across the screen is actually very representative of where home prices are going to go this year. But home prices, they tend to vary a lot, right? Usually by state.
So some states will see a decrease in prices and others might see an increase. The state that's actually projected to have the highest increase is actually the state of Arkansas. And you're going to hear more about Arkansas later in this presentation. I am surprised to see Connecticut here to be honest, but not at all surprised to see Kansas at number three. And you know what's different in this list?
Not a single Sunb Belt state is in this list anymore because all of those Sunb Belt states are seeing negative rent growth, right? There's a lot of supply. So, there's a lot of incentive for people to keep renting, which means that it's hard for them to get a lot of home price growth. Now, we show this slide every year in this presentation. Every year it gets worse.
Notice that until about 2021, the median income and the qualifying income were about the same, right? So, we're good. But starting from here, we sort of broke things in America. Things broke. No one noticed.
This is really terrible because today the qualifying income to afford the typical home in America is $121,000. But the median household income in America is 84,000. So there's this ridiculous $37,000 shortfall, this gap that's opened up in just the last 4 years. It's not getting any better. And you've also seen this slide before in our presentations, the famous lock in effect.
It's worth mentioning once more, right? So homeowners like me that have ultra low mortgage rates, they can't move. And that's keeping inventory tight. and and you know people like us are reluctant to you know sell because my current mortgage is a third of what I would need to pay if I moved. So as a result there's fewer home for sales that creates less competition and that creates upward pressure on home values.
Now the locking effect is moderating for sure year after year cuz you know we've not we've not had low interest rates now for three or four years. So it's moderating because some people need to move divorce debts other reasons jobs. It's moderating and slowing down every year, but it's still keeping home prices absurdly, unexpectedly high. This slide is not the sexiest, but it really ties together the last four or five single family slides. The gray line is the median monthly mortgage payment in the United States.
The blue line is the median multif family left uh rent. And take a look from the left and you'll notice that until 2021, right about here, right? These lines were pretty much tracking each other. And then what the f happens after co right at this point the gap between mortgage payments and rents, it just goes crazy, right? Is incredibly large.
If anyone tells me after looking at this graph that they can't figure out why they should be a landlord, then I'm going to send you a free pack of Rolin because you need it, right? The affordability gap is astonishing. We've never seen anything like it in US history. And if that last slide was not enough to convince you that people should be landlords, this next one is going to do that. As interest rates spiked, it became very, very difficult to build in America, especially to build apartments.
And as you can see here, there's been a stunning decline in multif family starts of 72% from peak. This is based on permits being pulled. So if we continue to underbuild apartments, then at some point in the future, maybe a year or two or three years down the line, we're going to see very strong rent growth. It's inevit nobody knows when it's going to happen, but it's inevitable that we see strong rent growth if we don't build more apartments than this. So with those with that record gap between buying and renting that you just saw and with multif family permits down 72% from peak, you would think that every market would be doing awesome with rent, just bursting with rent growth.
You would be wrong. Rent growth in the United States in 2025 was 0%. Flat, which means that on an inflation adjusted basis, rents in the US were negative last year. The big reason, really the only reason for that is that you saw that huge construction, you know, spike right here, right? And while it takes about two years to get these built, so these apartments have now been coming online and they're flooding the market with new projects and that's forcing both new apartments and old apartments to cut their rents.
So this is essentially this is especially a problem in the Sunb Belt. So you can see all of these markets that are on the screen, especially that ones at the top like Charlotte and Phoenix that have such a huge amount of apartment inventory coming in that pretty much all of these markets, all of these markets had negative rent growth. [music]