JP Morgan Analysts See 'Generational Opportunity' In Real Estate Market As A 'Direct Result Of Valuations Significantly Re-rating'

If you follow economic or investment news, you are well-acquainted with the severe turbulence that has roiled the real estate industry, especially in the retail and commercial sectors. Despite those highly publicized challenges, banking giant JP Morgan sees a "generational opportunity" in real estate over the next several decades. Keep reading to discover why JP Morgan believes in a real estate rebound.

 Don't Miss:

• This Jeff Bezos-backed startup will allow you to become a landlord in just 10 minutes, and you only need $100.
• Unlock the hidden potential of commercial real estate — This platform allows individuals to invest in commercial real estate offering a 12% target yield with a bonus 1% return boost today!

JP Morgan's bullish take on real estate appeared in the 29th edition of its "long-term capital assumptions" report. The banking giant compiled this report to better understand the financial markets by thinking beyond the current quarter or fiscal year. Alan Wynne, a global strategist for JP Morgan, sees the report as a potential counterstrategy to what he described as the "short-termism of modern finance."

 This report combines numerous data points to generate a 10-15 year outlook for over 200 asset classes and 19 global currencies. Wynne explained why this is so critical to investors, saying, "Importantly, as the name would suggest, these assumptions are for the long term (10–15 years) and should help guide investors when making strategic portfolio allocation decisions."

Trending: Arrived allows individuals to invest in shares of rental properties for as little as $100, providing the potential for monthly rental income and long-term appreciation without the hassles of being a landlord. With over $1 million in dividends paid out last quarter and a growing selection of properties across various markets, Arrived offers an attractive alternative for investors seeking to build a diversified real estate portfolio.

 Without taking this long view, JP Morgan's investment decisions would be almost wholly driven by current market conditions and that calculus can change quickly. For example, no one could have predicted how the COVID-19 crisis would lead to global supply chain crunches and runaway inflation. This motivated central banks worldwide to raise interest rates, devastatingly affecting several real estate sectors.

 The retail and office sectors had difficulty adjusting to the elevated interest rates because major players in these sectors buy and develop assets. They typically rely on short-term financing to acquire as many assets as possible, a tactic that works as long as interest rates stay low. However, the run-up in interest rates left many retail and office developers unable to refinance their debts while vacancy rates skyrocketed.

 These high vacancy rates translated to lower revenue, reducing the asset’s value securing the loan. Many regional banks that invested heavily in commercial loans after 2008 suddenly found themselves upside down in their loan portfolios. Some banks, like First Republic, were so exposed to unrealized loan losses that they faced insolvency.

 See Also: These five entrepreneurs are worth $223 billion – they all believe in one platform that offers a 7-9% target yield with monthly dividends

Ironically, the property value write-downs and abundance of distressed assets are where JP Morgan sees all the long-term upside in real estate. The report said, "Elevated rates and challenging debt markets have driven down commercial real estate values. We see a generational opportunity emerging for long-term real estate investors as a direct result of valuations significantly re-rating." This is a classic buy-and-hold strategy, but Morgan thinks the market is now ripe for acquisitions.

 More importantly, JP Morgan believes investors may not have to wait 10 years to start making money. Concerning 2025, the report says, "Our 2025 long-term return assumption for U.S. core real estate surges to 8.1% from last year's 7.5%." The best part is you don't have to be a billionaire bank to take advantage of this "generational opportunity."

Real estate investment trusts (REITs) and real estate ETFs are available in multiple sectors at prices that allow you to become a real estate investor for less than a pair of jeans. Many of them also generate passive income through regular dividend payments. So, if you've always wanted to get into real estate but didn't think you could afford it, JP Morgan thinks now is the perfect time for bargain hunting. 

Wondering if your investments can get you to a $5,000,000 nest egg? Speak to a financial advisor today. SmartAsset’s free tool matches you up with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.

Interest Rates Are Falling, But These Yields Aren't Going Anywhere

Lower interest rates mean some investments won't yield what they did in months past, but you don't have to lose those gains. Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities.

Arrived Home's Private Credit Fund’s has historically paid an annualized dividend yield of 8.1%*, which provides access to a pool of short-term loans backed by residential real estate. The best part? Unlike other private credit funds, this one has a minimum investment of only $100. 

Looking for fractional real estate investment opportunities? The Benzinga Real Estate Screener features the latest offerings.