Macroeconomics (think interest rates and national productivity) greatly impact the commercial real estate markets we serve. Three major macro topics of 2021 were inflation, interest rates and labor participation. The most recent data released by the federal government indicates year-over-year inflation is at 6.2%, which is a rise from the previous quarter’s 5.4% and a multi-decade high. From higher price tags at the gas pumps to greater expense at the grocery store, inflation causes the dollars we have in our possession to have lower purchasing power.
The current rate of inflation has initiated discussion about interest rate increases to combat inflationary concerns. Historically, the federal government has utilized one of its key monetary policy levers, interest rate control, in high inflationary periods. The Federal Chairman, Jerome Powell, and his team anticipates three interest rate hikes in 2022 and another three in 2023. BDR projects interest rates to rise 75 to 125 basis points in 2022. On average, BDR has seen commercial real estate interest rates hover around 3.5% (3.25% – 3.75%) in 2021. If BDR’s projected 2022 increase is accurate (utilizing 1% interest rate increase), a $1MM loan will be $6,322.68 more per year when amortized over 20 years.
In 2021, BDR saw a significant increase in demand for investment commercial real estate. Investors are looking to diversify. Low interest rates is one key reason. Other contributing factors include high inflation, speculation the stock market is due for a correction and investors desire to move into tertiary/rural markets. Black Diamond Realty’s thoughts behind these contributing factors include:
The factors above have resulted in compressed cap rates and corresponding higher valuations. It is a great time for a seller to exit an asset while a difficult time for purchasers to find deals. Black Diamond Realty has experienced a significant increase in off-market deal activity and we anticipate this trend to continue.
North central WV and southwestern PA are enjoying many economic highlights as our nation moves further beyond the Covid pandemic. Some of the north central WV highlights are captured below.
BDR worked hard to achieve its clients’ goals in 2021. The BDR team closed 87 deals in 2021 with 61% leases versus 39% sales. BDR added a new colleague, Caleb Wooldridge, to our growing team. Caleb joins BDR as a recent WVU graduate who majored in Economics and interned with David as an undergraduate. We are excited to watch Caleb flourish in the years ahead.
In his fourth year, Jeff Stenger continues his climb by surpassing production year after year. Jeff’s empathetic, hard-working and detailed-oriented demeanor adds tremendous value to the clients he serves.
Chris Waters has been dubbed the medical marijuana and industrial guru in BDR’s office. Last year was a breakout year for Chris and 2022 looks to continue that growth.
In her first full year with the team, Kim Licciardi set a BDR record for Year 1 production. Kim’s underwriting knowledge, business acumen and confidence have quickly propelled her onto a path as a top producer.
BDR’s sales team would not be where it is today without the skillset, support and moral fabric that Janelle Zeoli and Andrea Cooper provide daily. These two women are invaluable to the BDR team and continue to support our growth and development.
As we close the 2021 chapter, we are pleased to announce BDR is aggressively and actively working toward opening a second office in Martinsburg, WV. We will be recruiting and hiring key team members in the market with a specific focus on fostering client relationships and fortifying vendor contacts. We are optimistic our presentation, process and people will be well received in this new market. There will be more to come in a future announcement.
Our team promises to continue to strive to raise the standard while exceeding expectations in this new year and beyond. Thank you for your trust and confidence and we look forward to making 2022 a great year, together.