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CEO Message and Outlook for 2024

January 18, 2024

Earlier this month, our CEO’s Peter Politis and Sasha Cucuz shared Greybrook’s end-of-year recap and outlook for 2024 with investors.

As we begin the new year with optimism and determination, we look forward to capitalizing on opportunities for growth in 2024 and forging ahead in our existing investments with a commitment to maximizing our investor returns and prudently managing risk. We invite you to read their thoughts on the year ahead.

Greybrook CEO Message

Last year will be remembered as a challenging year around the world for many countries, markets, organizations, and individuals alike. From an economic standpoint, the complexities stemming from the aftermath of the pandemic have continued to foster a feeling of uncertainty for businesses and consumers left coping with the higher borrowing costs brought on by central bankers in their attempt to curb rapidly rising costs and inflation. These conditions have made affordability a significant challenge for families and individuals while slowing the pace of growth and innovation as businesses began pulling back on their hiring activities and capital investments. Yet, despite these challenges, our sense of hope for a more stable, peaceful, and prosperous future remains strong as we head into this new year.

Throughout 2023, our team has been working diligently with our development partners to advance our active projects and make strategic decisions at every stage. It is times like these that the benefits of our active asset management approach and our real-time experience across our large and diverse portfolio are front and center. Leveraging our experience across markets and projects and collaborating with some of the most experienced development teams in the industry has helped ensure we are in the best position to make optimal decisions.

As we navigate towards a more stable market, we continue to evaluate a myriad of investment opportunities that align with our investment strategies, and we are well-positioned to take advantage of any opportunities that arise from market dislocations. We continue to be very bullish on expanding our investments in both existing and new markets including the addition of more U.S. value-add investments in markets like Atlanta, Georgia, and others in the U.S. Sun Belt.

Looking Ahead

With respect to monetary policy, we expect policymakers in both countries will end their historic and aggressive monetary policy tightening campaigns and start to gradually reduce current interest rates in 2024. So far, it seems both central banks have been mostly successful in reigning in the pandemic-era inflation that resulted from prior years’ stimulative monetary policy, and both are doing as much as can be expected to avoid seeing any prolonged recession as the economy, labour market (and de facto the level of price growth) slows. While the phrase “higher for longer” has been bandied about for months by central bankers when addressing the likely pace of interest rate deceleration, it seems “how high” and for “how long” will depend wholly on the level of economic slowdown we see over the next few months. Overall, while the war on inflation may not yet be fully won, we believe central bankers in Canada and the U.S. have begun to feel as though it is enough in control such that they can start to balance better the cost/benefit trade-off between realizing the incremental unit of inflation deceleration and a further unit of “engineered” economic decline.

It is our view that the “higher for longer” scenario is unlikely given the pace of inflation deceleration, aggregate economic slowdown thus far, and closer to home the fact that the BOC is keenly aware of the high level of residential mortgages renewing throughout 2024, 2025 and 2026 (all of which would at today’s rates be renewing with considerably higher payments). As such, we believe interest rates will firmly establish their downward direction in 2024. Canada will likely have to be more aggressive than the U.S. Federal Reserve to balance its economy, consumers’ higher interest rate sensitivity, and its comparatively heavier economic reliance on residential real estate.

In Canada, we believe this will mark the beginning of a strong market recovery in residential real estate, and, more specifically, the development industry. This will be represented by what we believe will be a leveling off (and greater predictability) of costs and a more robust market for new home/condo sales. As we move past the “black swan” events represented by the pandemic and the subsequent tightening of historical monetary policy, we expect the industry to return to a state of “normal” towards the latter half of 2024 and into 2025. As consumer/investor confidence returns to the real estate market with an improved economic outlook, we believe the strong fundamentals that have always been driving the GTA/GGH housing market will prevail. As history has shown in past cycles, every rate tightening cycle has been followed by a period of rate easing. During that period, the GTA/GGH residential real estate market has rebounded with strength, and we expect history to repeat itself this time as well.

Similar to Canada, we anticipate 2024 will see a meaningful reduction in interest rates in the U.S. The U.S. and Canadian economies have experienced similar yet different impacts due to the post-pandemic monetary policy tightening programs implemented by their respective central banks. South of the border, and with a far less indebted consumer, the U.S. economy has remained strong, defying most expectations. While forecasts call for a slowdown, the U.S. economy has performed considerably better than Canada’s and conditions in the real estate market, across our focus markets have continued to remain relatively stable. We expect these conditions will have a further positive impact on the residential real estate market both in sales and rent growth, particularly if the U.S. realizes a soft landing for the economy, as most economists expect.

New Investment Opportunities

With respect to new investments, we remain as committed as ever to our investment theses and strategies within our target markets. We believe our Canadian investment strategies have never been more relevant and believe we are investing in the best place – where the underlying fundamentals are very strong and, within a market where we have accumulated extensive experience. As a firm, we are consistently challenging our forecasts, investment theses, and assumptions to ensure we are positioning ourselves to manage our risk and maximize return potential with every new acquisition.

The current environment will create opportunities for new acquisitions with potentially greater flexibility on the terms of land acquisitions, and we are currently evaluating many opportunities for long-term investment in the GGH region. We are focused on bringing a variety of high-quality investment opportunities to our investors that include long-term low-rise development and land development projects in the GGH region, transit-oriented high-rise or ideally located mid-rise developments in Toronto, in addition to U.S. value-add properties. As mentioned, we continue to be bullish on the U.S. and seek to add to our expanding portfolio, particularly in acquiring new value-add garden-style apartment properties in key Sun Belt states including Georgia, Texas, North and South Carolina, among others. This will allow investors to continue to build diversified portfolios with Greybrook and create a well-balanced, risk-adjusted exposure to a portfolio of projects that includes variation in geographies/submarkets, asset type, operator, and project duration.

As we plan for growth, our commitment to investing in our operations and our talented team remains unwavering. A capable and well-equipped team is essential in executing our strategies and successfully managing our existing projects while maintaining the trust of our more than 10,000 investors worldwide.

Click here to read our full Year-End Recap & 2024 Outlook

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