As we officially kick off the first quarter of 2023, we wanted to take an opportunity to share with you our insights, outlook, and thoughts about the state of the market, what we’re investing in, what we’re hearing from all of you, and the performance of the Goodegg Portfolio overall.
As the financial landscape continues to shift and settle, we plan to send you an investor letter just like this one at the beginning of each quarter moving forward, so you can stay in lock-step with us regarding what we’re seeing and what we’re looking at.
Let’s start first with a look back over some of the highlights of 2022.
2022 Highlights – Strong Acquisitions & Strong Exits
The team at Goodegg Investments was extraordinarily busy throughout 2022, particularly with the shifts in the overall market.
Goodegg Diversification Fund II
– Closed Q2 2022 –
We began the year with the successful acquisition of two hotel assets just outside of Chicago via Goodegg Diversification Fund II. Both hotels are performing extraordinarily well and providing strong investor returns.
Goodegg Wealth Fund I
– Closed Q3 2022 –
Once Goodegg Diversification Fund II closed, we launched our first multifamily equity fund – Goodegg Wealth Fund I.
Together with so many of you, we were able to close on 3 incredible multifamily projects in Arizona and Texas across nearly $190M in acquisitions via Goodegg Wealth Fund I – all amid an ever-changing financial landscape – which definitely kept us on our toes every step of the way.
Overall, the three assets within Goodegg Wealth Fund I increased the Goodegg Portfolio by 654 multifamily units – a huge success and incredible win.
Goodegg Diversification Fund III
– Pending Close –
As you may know, “never settle” is one of our core values at Goodegg, so right after we closed Goodegg Wealth Fund II, we moved forward to launch yet another opportunity – Goodegg Diversification Fund III – to acquire two additional hotel assets in central Indiana.
Based on the success of our earlier hotel projects, our investors filled the capital needed within hours of opening – yet another win for everyone involved.
Goodegg Wealth Fund II
– Just Launched –
At the tail end of 2022, we officially launched our latest offering – Goodegg Wealth Fund II – which is now open for investment.
Given the multifamily opportunities that lie ahead (more on that in a moment), we are very excited for the potential of this new fund.
Click here to learn more and invest
Along with all of you – our incredible investors – we acquired assets in 2022 totaling over $250M. That’s right – we did that. Together!
A quarter of a billion dollars in acquisitions all within one year. Amazing. Cue pat on the back.
2022 Deal Exits
On top of that, 2022 saw several strong exits. We beat projected returns across the board on all transactions.
Across the 8 deals we exited in 2022, we saw the following returns:
- Average IRR: 24.98%
- Average Annual Return: 28.44%
- Average Equity Multiple: 3.26x*
*Annualized over a 5-year period
The Goodegg Portfolio – Steadfast & Resilient
Even in the face of a continually shifting economy, the Goodegg Portfolio remains steadfast and resilient, and we continue to beat nearly all pro forma metrics in our current portfolio.
During what will be considered one of the most volatile periods not only for real estate but for the economy as a whole, Goodegg Portfolio properties have continued to perform in a steady manner.
Growth In The Face Of Change & Uncertainty
One of our newest acquisitions, The Sarah at Lake Houston, has increased its occupancy to 97.2% as of December 2022, from an October low of 90% – a huge win in this shifting economic landscape.
Though an overall slowdown has certainly occurred in the multifamily market – with some regression in rents and a noticeable uptick in delinquency as the population deals with inflation on everyday goods and services – the Goodegg Portfolio remains steady and stable in the face of change and uncertainty.
Strong Markets & Resilient Assets
Though we expect some softness to continue in the multifamily market as the Federal Reserve tries to get inflation under control, we are situated in markets that have proven to be resilient, and we are invested in a sector – multifamily – that arguably has the best track record and outlook when compared to office, retail, and even industrial.
On top of that, we continue to stress to our partners and property managers the importance of perpetual improvement. We have been and will continue to be focused on ensuring our on-site personnel, our pricing, our product (apartments and amenities), and our marketing efforts are in sync and constantly evaluated.
Goodegg Portfolio Assets Are Holding Strong
Across the portfolio, our occupancy increased from 93% at the beginning of the quarter to a current rate of 93.5%, and our average rent across the portfolio increased from $1,416 to $1,430.
While these increases may not sound substantial, they show that the Goodegg Portfolio is holding steady amid a continual sea of change, speaking to the overall resilience of multifamily investments.
Our expectations as we kick off the first quarter of 2023 are that all properties across the Goodegg Portfolio will maintain their respective occupancies, and net income will incrementally increase as the year progresses.
2023 Multifamily Outlook
As for what’s ahead, we’re still dusting off our crystal ball for 2023, but we do have a few thoughts and predictions to share.
Overall, the multifamily market performed well in 2022 but has shown signs of cooling off a bit in the second half of the year.
Not to worry though – as this is actually a good thing for all of us as investors – as this is a sign that great opportunities lie ahead. 💪
Vacancies & Rental Rates
According to CBRE’s US Multifamily Q3 Report, the overall US vacancy rate increased by 80 basis points (bps) quarter-over-quarter to 3.9% but remained well below the long-run average of 4.9%.
Average monthly net effective rent increased by 10.4% year-over-year in Q3 2022 to $2,143, down from a 14.6% year-over-year increase in Q2 and a 15.2% increase in Q1.
While rents are still historically strong, the growth rate is normalizing compared to the COVID induced rent growth frenzy to a more sustainable level.
This is an overall positive for the economy and for the multifamily rental market in general.
Inflation Is Easing
In addition to lower market rent growth, there are signs that inflation is lessening. US consumer price inflation eased more than expected in November to its lowest level in almost a year.
The rate of increase in the consumer price index fell to 7.1% in November 2022, lower than the 7.3% forecast by economists and down from 7.7% in October. It is the lowest level since December 2021.
This is welcome news for all of us as real estate investors across the board, as the slowing inflation gives the Federal Reserve some room to ease up on interest rate hikes. 😅
Our Underwriting & Acquisitions Criteria
Considering easing rent growth and high interest rates, we have updated our underwriting standards and investment thesis accordingly by lowering year one projected rental growth and underwriting higher exit cap rates compared to our previous underwriting.
As the market continues to shift, this will ensure that we are remaining conservative and including ample buffer in every deal, to account for potential shifts and unknowns in the coming years.
Multifamily Opportunities Ahead
Multifamily investment volume in Q3 2022 decreased by 22% year-over-year as buyers have more leverage and sellers have fewer options to refinance at attractive interest rates, creating an opportunity for us to purchase deals at a discount to where assets were trading a year ago.
Therefore, we continue to confidently bid on multifamily assets located in strong areas, including Sun Belt markets, due to an opportunity to stabilize at cap rates much higher than possible when compared with previous years.
If you are an accredited investor, we invite you to invest alongside us in the multifamily assets we will be acquiring in this opportune time via Goodegg Wealth Fund II.
Speaking of investments, our group of investors continues to grow every month, and we are continually humbled by and grateful for each and every one of you.
The fact that so many of you continue to put your trust in us – to protect and grow your hard-earned capital and build wealth for your family – means the world to us, and we’re incredibly grateful for the impact we’re able to create together.
New Goodegg Investors
Each of our most recent acquisitions have included a significant number of investors new to the Goodegg community.
On average, nearly 35% of all invested dollars in each deal has come from new members of the Goodegg Investor Club. We are truly humbled that so many new investors see our value and decide to partner with us by investing alongside us.
Returning Goodegg Investors
Along with our new investors, we are eternally grateful to our returning investors who have invested with us in multiple acquisitions.
On average, nearly 50% of our current investors invest in multiple projects. This speaks to the incredible level of trust that so many of you have placed in us.
Your Friends & Family
We consider it one of the highest honors when you refer your friends and family to invest together with us, which is something so many of you have done.
We are grateful to have the opportunity not only to help YOU grow your wealth, but also incredibly humbled at the opportunity to help your moms, dads, siblings, cousins, neighbors, colleagues, and friends.
It means the world to us that you continue to trust in us and our team enough that you send people within your network to us. It’s the highest compliment you could possibly give us, and we take the responsibility of protecting and growing the collective wealth of your friends and family very seriously.
No matter how big we get or how many acquisitions we pursue, we’re never too busy for your referrals, so keep sending them our way!
What Investors Are Telling Us
We continually reach out to current investors to understand personal financial drivers and try to match those with our future acquisitions.
We’re hearing from so many of you that, based on market volatility, many of you have a clear desire to create consistent cash flow while taking a conservative approach to risk.
Although long-term returns are always important, the common refrain has been to focus on projects that create surety and consistency.
To that end, we are working diligently to acquire assets that match short-term cash flow with strong returns on exit.
Whether we are working with returning or brand new investors, we always value your input as part of the Goodegg Community. We’re all in this together!
As We Move Forward…
As we continue to face a volatile economy, we stay focused on sourcing strong investments in both multifamily and hotels.
We are bullish on the overall market and have an incredibly strong pipeline of projects that we are considering.
As we kick off 2023, we are excited about the opportunities ahead. The future for investments is quite strong, and we are thrilled to be in a position to help all of you strategically and intentionally protect and grow your wealth in 2023 and beyond.
If you’re an accredited investor and haven’t already, be sure to join the Goodegg Investor Club so you can stay in the loop on all future investment opportunities.
And, remember that we have a current investment open – Goodegg Wealth Fund II – which is accepting investments now!
And of course, if you know anyone who wants to build their wealth, we would love it if you would forward this email to them. Remember – we are never too busy for your introductions and referrals.
Here’s to a very sunny-side-up 2023 ahead!
Julie, Annie, and The Goodegg Investments Team