December 2024 Insights: Happy Holidays
Merry Christmas, happy Hanukkah, and a warm seasons greeting from the Vanamor Team. As we close out December and the final chapter of the year, it’s time to reflect on a transformative 2024 in commercial real estate and look forward to the opportunities we expect in 2025. This year has been one of resilience and adaptability, as we navigated shifting market dynamics, lingering restrictive interest rates, and celebrated the continued health and growth of our growing portfolio. Patience has remained key and we continually reminded ourselves that the real estate industry is a slow moving ship which takes time to turn.
The thing about patience is that it sometimes feels like watching paint dry, and that was us for most of 2024 (and 2023) as attractive opportunities remained extremely elusive with the exception of LuxLiv which we closed in August of this year.
But all good things come to those who have the perseverance to wait. After years of saying “not yet” and being early with our initial call for the 2nd half of 2024, we’re finally seeing the stubbornness of out-of-touch sellers wane and the bid-ask spread between buyers and sellers narrow (incrementally). The incremental change is a sign of what’s to come in 2025 – opportunity.
We are confident that 2025 will be the pivot that we saw in the aftermath of the GFC, but more on our outlook in a minute. First, let’s take a look at the year that was:
Federal Reserve’s Dance with Rates
Money got cheaper in 2024 and was expected to get much cheaper… until it wasn’t. Despite only controlling the Federal Funds Rate, the entire yield curve experienced volatility more akin to the stock market than the bond market. With three important rate cuts now in the books, expectations are for two more next year and higher for longer interest rates. This outlook is surely to change on a quarterly, if not monthly basis.
Supply and Housing Starts
In 2024, apartment supply hit the highest levels in 40 years. That supply had an impact on rent growth nationally, but the impact has varied from market to market with the most significant impact observed throughout the sunbelt. As we move forward looking at 2025, the recovery process will also be dependent on location, with certain markets past their delivery peak, while other markets are forecasted to peak in the coming year. We analyze the specifics of the data as shown in the map below to determine the exact recovery process – which markets will grow in 2025 and which will likely have another year of negative rent growth.
While apartment deliveries provide certainty of the near-term future (12 to 24 months), apartments starts provide insight over the medium term (24 to 60 months). Starts dropped to the lowest levels in a decade, according to U.S. Census data released yesterday, further evidence that the apartment supply cooldown will be deeper than a mere return to pre-COVID norms.
Bottom line: Construction starts data continues to play out as expected — feeding into the consensus forecast for a low-supply environment in 2026-27, and possibly helping justify some of the industry’s bullish expectations for that period.
Trump’s Return: Potential Real Estate Impacts
Most political analysts predicted a close race, but Donald Trump pulled off a decisive victory with 312 electoral votes to Kamala Harris’s 226, and he became the first Republican since 2004 to secure the popular vote. Meanwhile, Republicans strengthened their grip on Congress, flipping four Senate seats to claim a 53-seat majority while maintaining control of the House with 218 seats.
Trump and his team want to make the 2017 Tax Cuts permanent before their 2025 expiration, which would provide upward pressure on real estate valuations and corporate profits. The preservation of 1031 like-kind exchanges remains protected, letting investors defer taxes when reinvesting proceeds and restored 100% bonus depreciation for both new and used properties. On the flip side – those proposed 10-20% import tariffs will likely increase the cost of building materials, and aggressive policing of immigration laws may increase deportations and have an outsized impact on the construction industry workforce.
Vanamor specializes in tax-efficient investing for long term wealth creation so the combination of both the restored 100% bonus depreciation and safety in the 1031-exchange greatly enhances our strategic offerings. Our last two investments provided ~50% taxable losses (on paper) which will likely increase closer to 75% with the return of full bonus depreciation. With these tools, I am confident in saying that there is no better asset class to have in one’s portfolio than cash flowing real estate.
Distress and Unrealized Lost Equity
The word distress has made headlines and we’ve been speaking of it for over a year now. Similar to the GFC, actual distress is less than initially thought and mostly concentrated in older vintage properties. However, make no mistake, “delay and pray” strategies by lenders and sponsors have simply extended the timeline and we expect more distress in 2025. Even greater than the amount of distress is the amount of unrealized lost equity that likely won’t be realized for years to come.
Looking Ahead to 2025: Vanamor’s Strategic Positioning
Having navigated multiple real estate cycles, we understand how these market shifts unfold and are well-positioned to capitalize on the opportunities. Dislocations like these create unique chances for disciplined operators to acquire high-quality assets at a discount. We’re currently seeing properties trading below replacement cost in markets supported by strong population growth and robust employment fundamentals. Our conservative underwriting approach and value-add expertise uniquely equips us to acquire and enhance these assets effectively.
We are particularly focused on distressed multifamily properties requiring professional management and strategic capital improvements—our specialty. With a proven track record of success across various market cycles, our team is ready to deploy capital thoughtfully as compelling opportunities arise. It’s worth remembering that some of the best real estate investments emerge during periods of market uncertainty, where patient capital and operational expertise can unlock exceptional value.
Watching deals go by as the Fed Funds rate sat above 5.5% this past year while other investors anticipated a quick recovery wasn’t always fun. However, staying disciplined in our underwriting standards and refusing to “stretch to win the deal” (i.e., overpay) has proven to be the right strategy. Now, as the Fed begins easing rates, the market is opening up as anticipated. We’re seeing quality properties offered at significant discounts, supported by solid employment trends and stabilizing inflation. Looking ahead, we believe the foundation is in place for the next upward cycle, with rent growth returning and capital markets normalizing.
Your trust in our approach means everything to us, and we look forward to sharing attractive investment opportunities in 2025. Thank you again and may everyone have a wonderful new year.
What We Do
We are strategic real estate investors.
At Vanamor, we combine an institutional approach with an often overlooked middle-market focus to employ a flexible and disciplined investment philosophy. Our goal is to provide stable cashflow with above-market total returns. Since inception, Vanamor has averaged a greater than 33% annual return with an average of 8% annual cashflow distribution.
