February 2023
Dear Investors,
We’re excited to reach out to you under our united umbrella, Edge West Capital. Looking back, 2022 was a growth year for us, including a restructure and breaking down our processes to see where we can build back stronger and more effective. The real estate market was challenging too, we witnessed cap rates expand up to 200 basis points (“bps”) in some cases, lender interest rates rise 300-350 bps in a 90 day contract period, consistent re-trades, interest rate caps swell by 10 times or more, insurance rates, payroll costs, capital expenses and other operating have increased by 20%-200%+, among others. Moreover, we have witnessed more than $10B in real estate values eroded.
Our goals for 2023 are focused on two principles: 1) a patient, cautionary, and critical approach toward forthcoming acquisitions; and 2) even greater discipline and rigor towards asset management. These elements are within our control and with a strong defense we can mitigate many of the risks. Multi-family and the greater real estate market have faced similar headwinds before – each one unique in their own right – and yet certain assets have continued to thrive. To that end, we remain steadfast in our belief multifamily remains positioned to outperform many other asset classes in the coming years. Simply put, the fundamentals have not changed: We have a severe shortfall in housing supply; climbing interest rates have put homeownership out of reach for many (the average monthly mortgage payment has jumped 28%). This has resulted in strengthening rental housing demand – translating to a unique opportunity for EWC and its investors to benefit financially for providing greater access to those seeking an improved, affordable living environment.
There are intimations that a greater number of multifamily assets will begin to default as multifamily delinquency rates rise. We are actively witnessing a greater volume of product on the market. And seller pricing expectations are more frequently inching down to more, but not always completely, realistic underwriting standards (more akin to pre-pandemic). Simply put: we believe 2023 will be rife with opportunity, particularly for those with dry powder available.
We remain committed to work diligently to improve, adapt, evolve and, most importantly, continue earning your trust. And with ongoing patience and judiciousness, we are thrilled at the prospect of bringing excellent investing opportunities to you in the weeks ahead.
Grateful to have you on this journey with us.
