Real estate investing amid stock market volatility

Real estate investing amid stock market volatility

By: Brian D. Milovich, Managing Principal, Calvera Partners

Uncertainty is prevalent today throughout all markets. The Trump administration is causing havoc with wide-ranging tariffs (now paused for 90 days), spending cuts, and foreign policy decisions. Some of these choices appear to be permanent, others disappear the next day and reappear a month later. It’s hard to plan for the future when the present is unknown.

I don’t know what impact these changes will have, though I can speculate. Inflation may increase. New foreign conflicts could pop up. A recession and/or stagflation may emerge. Or, growth will reaccelerate, and interest rates will fall. We just don’t know which direction these changes will take us. And it’s making for a wild ride in the stock market over the past couple of weeks.

One objection to investing in real estate has been the built-in gains from phenomenal returns generated in the stock market. The S&P 500 total return index has gained 37% since January 1, 2023. If you invested in NVIDIA, you’re up 582% over that same period. When people have gains on paper, they don’t want to sell and trigger a taxable event. It’s natural to want to stay invested. But given the new uncertainties in our world, the years of out-sized stock market returns feels over.

The S&P 500 total return index has gained 37% since January 1, 2023. If you invested in NVIDIA, you’re up 582% over that same period. When people have gains on paper, they don’t want to sell and trigger a taxable event. It’s natural to want to stay invested. But given the new uncertainties in our world, the years of out-sized stock market returns feels over.

Since January 1st of this year, the S&P 500 total return index is down 13%, and NVIDIA is off 29% ¹.

I think real estate should get a hard look. Here’s why.

Real estate hasn’t had the same recovery as the equity markets. At least not yet. The industry now sees green shoots after years of declining rents, higher vacancy, and record levels of new apartment supply. Even the office market is making strides as hard-hit cities like San Francisco are seeing positive absorption. Growth is ready to reemerge, and it will pay to be on the front end of it.

Challenges still remain in the real estate industry. Debt maturities of loans secured by properties bought at the top of the market are piling up. For example, according to Colliers, there are $310 billion in maturing multifamily loans in 2025. Of that number, $97 billion (31%) are extensions from prior years. Colliers also notes that “multifamily had the highest volume of extensions…the most of any asset class.” The can keeps getting kicked down the road. As a result, many owners are dealing with distressed assets and not able to focus on new acquisitions. Their challenges will have to be dealt with at some point, and those investors with capital will be ready to pounce.

Interest rates aren’t helping those distressed owners. Rates remain too high for many to refinance their debt. And today’s level of interest rates means buyers of properties require a higher yield. For deals that do transact, buyers are generally getting more yield, and higher quality assets. This is all before rent growth starts to surge again.

The entire real estate industry believes that rent growth will return within the next 9-18 months, depending on the market. A 50-year high of new apartment supply will be over and fully absorbed (leased). With little new supply in its place, and with steady apartment demand, rents are poised to increase. We’re seeing this in real-time at our Minneapolis property. But people want to see it (i.e., rent growth) before they invest in it.

The late Sam Zell said in his book, Am I Being Too Subtle, “Risk is the ultimate differentiator. I have always had a deep and complex relationship with it. I am not a reckless person, but taking risks is really the only way to consistently achieve above-average returns—in life as well as in investments.” Investors can’t have both today—guaranteed high rent growth and above-average returns.

Some level of risk is needed to generate the attractive returns investors desire. Ninety-five percent of the market is unwilling to take that risk today. We believe the five percent that do will be handsomely rewarded.

¹ Returns for ^SP500TR and NVDA calculated from 1/3/2023 through 4/7/2025.