September 1, 2021
As the economy chugs along with rapid growth in the economy, post COVID, our economists are often concerned about Inflation. A simple definition of Inflation is: a general increase in prices and fall in the purchasing value of money.

Our current generation hasn’t seen much inflation above 2-3 percent. Historically, the big jumps in inflation where after World War II as the economy boomed post war (double digits in 1947) and briefly in 1974 (think oil embargo and the impact of petroleum price on many consumer products). So, what’s the big deal about inflation and real estate in particular, and why could we be concerned?
Inflation exerts will tell you that in an inflationary economy, some of the best investments to make are in gold and real estate. Let’s look at real estate and inflation’s impact.
Current Owners of Real Estate
One metric of consideration in real estate investing is replacement cost. Simply put, the amount you will pay for real estate is a factor of what it would cost to build it today. On the same corner of Main and Main, if you had a building that you bought at $100/sf ten 10 years ago and the site next door was just built new at $200/sf…which one would you buy if the rents were the same? By the very nature of inflation, the current owners of real estate could have a competitive edge based on their cost basis relative to replacement cost. Why build new when you can buy next door? Better said, what was once $100/sf has gone up considerably because of what it takes to build new. Existing owners relish inflation on these very simplistic terms.
Developers of New Real Estate
Our developments are at risk when inflation occurs. In the real-world case below, because of inflated lumber prices (in part), our project had a “pause,” as costs required us to “restructure” our offering. We underwrote certain rents, which attributed an underlying value and in turn facilitated a need to restructure our capital in a manner that was feasible. When preliminary construction prices came back, the assumptions needed to change: 1) We needed higher rents – which was not going to happen…the market is what it is; 2) We needed more equity and debt to make up for the increase in costs and 3) All the documents to do the deal had to be rewritten and approved through various entities, lenders, and authorities that need appeasing. The eleven (11) attorneys on the deal were very happy to rewrite our documents.

The Coming Disaster
Reviewing the graph below outlines the effect of inflation of over period of time on the spending power of a dollar (read the definition above again).
The apolitical take-a-way here is that inflation is already impacting our economy through affordability or the lack thereof. Housing affordability used to measure the cost of housing to 30% of one’s income. The metro area of Atlanta has an Average Median Income of $82,700 for a family of four. This equates to an affordable rent of about $2,000 per month. If you are a wage earner at $15/hour, applying the same metric, you can afford rent of less than $800/month. The average two (2) bedroom apartment in Atlanta is approximately $2,100/month. What are people doing? In Oakland, California, it is reported that the new metric is 60% - 60% of one’s income in Oakland goes to rent.

Where ever there is a gap in the economy, that is where opportunities exist. While TriStar is still investing and looking for commercial real estate investments, we have pivoted heavily into affordable housing with partners to assist in closing.

Check out our: DEAL PROFILE OF THE MONTH below
Deal Profile of The Month!
Villas and Flats at Mt Zion
TriStar is pleased to announce the closing and pending groundbreaking of the Flats and Villas development at Mt. Zion, with our partners Zimmerman Properties. This will be a 306- unit equitable housing development that will also include a permanent facility for Star-C’s after school programs on site in conjunction with a partnership with the Clayton County School system. We are delighted with our partnership and look forward to announcing two more developments in the coming months.
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We are in pursuit of several investments. If you are an accredited investor and want to be considered for one of these offerings,
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Call us today to learn more at 404-698-3535 or email

TriStar Real Estate Investment