There are many theories on where the Fed will take interest rates. With the Consumer Price Index (CPI) up “only” 5% in March, down 1% from February, it seems there could be validity to both. The first is that even 5% will be too high for the Fed to tolerate, and will continue raising rates almost certainly sending the US into a recession. The second theory is that at the first sign of a recession the Fed will reverse course and decrease rates back to or close to where they have been for the past 5-10 years, near zero. It seems to us that the Fed is fairly determined to get inflation under control, which will take likely many more and/or larger interest rate increases to make an impact. By the time they have gotten inflation down, the US will almost certainly be in a recession.
So what does this mean for Archangel Capital?
Its a mixed bag. With interest rates at a much higher level, cap rates will in some way be affected, bringing the value of our existing holdings down. It should however, force some sales of commercial properties, potentially at discounts when existing owners need to sell or refinance. We will gladly make this trade, as the past couple of years has presented an extremely difficult buying environment, and is the reason we did not purchase anything in 2022. Prices simply could not support the long term projections we made for properties we evaluated. In short, a recession could present a welcome buying opportunity for those that didn’t waste their money on bad deals in 2021 and 2022.
