May 2021
The Best Inflation Hedge
We are all suddenly talking about and feeling the effects of inflation. The grocery bill and prices at the gas pump are noticeably higher. Soaring lumber prices have added $36,000 to the cost of a new home. The Labor Department confirmed this as it reported a 4.2% annual increase in April consumer prices—the highest since 2008. About 40 years ago, the late Nobel Prize winning economist Milton Friedman compared inflation to alcoholism. Friedman argued that drinking alcohol initially felt euphoric, much like the feeling when central banks begin to print money. However, he believed there was a strong inclination to overindulge, and if too much money was printed, or similarly if too much alcohol was consumed, ill effects would follow.
To pay for COVID related stimulus, the Federal Reserve has added about 25% to the total supply of U.S. dollars today. Treasury Secretary Janet Yellen said, “above normal inflation is likely to persist through the end of the year before fading.” The Fed insists that current inflation is the result of recent government spending coupled with pent up demand during the re-opening of the U.S. economy. Other economists worry about a replay for stagflation from the late 1970s and early 1980s when inflation spiked, and the economy stalled.
However the inflation risk may play out, we believe that owning multifamily may be the best hedge out there. Unlike bonds and cash which lose purchasing power, real estate holds intrinsic value, is in limited supply and can provide cash flow. Multifamily in particular is well suited to benefit from inflation more than other asset classes. The reason for this is twofold:
  1. Apartments operate with short-term leases of typically 6, 9 and 12 months. This allows flexibility to raise rents more quickly as prices increase. Other real estate asset classes like office and industrial, typically have lease durations of 5, 7, and 10 years or even longer, putting these landlords at a disadvantage of being unable to raise rents.
  2. Apartments also have the unique advantage of being able to access Fannie, Freddie, and HUD for financing. Theses government sponsored enterprises provide certainty of capital and typically the lowest cost financing available in the market. At CALCAP, we regularly use agency debt, and have been locking 10-year loans in the mid 3% range over the last couple of years. This is powerful and provides great protection against any inflationary pressure as you are able to reduce debt using cheaper dollars. 

We remain bullish on the rental housing markets and are feel well positioned in both an inflationary, and non-inflationary environment. 
Have a safe and happy Memorial Day!
Edward M. Aloe
Founder and CEO
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Latest Headlines...

NYC, LA and SF residents are moving to these cities

"The dust has not settled" yet on migratory patterns

The analysis, which found that nearly one-third of users looked to move to a different metro area in April, is based on a sample of more than two million users who searched for homes across 87 metro areas. Phoenix, Las Vegas, and Sacramento all saw more than 6,000 Redfin users move into the respective metros in April.

Daryl Fairweather, Redfin chief economist, said movement from one metro area to another has been trending upward since the beginning of the pandemic, as Americans continue to take advantage of remote working and the ability to live in cheaper parts of the country.

“The swell in relocations may be coming down from its peak, but the share of homebuyers looking to relocate to a different area is still well above pre-pandemic levels,” Fairweather said. “The dust has not settled. There are still a lot of unknowns about what portion of workers will return to the office and how many will pick up and move because they finally have clarity from their employers about whether or how often they can work remotely.”

Case-Shiller: Largest home price increase in 15 years

Phoenix, San Diego, and Seattle post the highest increases

“Home price appreciation pressed higher in February as competition for housing remained red hot,” Speakman said. “As more signs emerge that the economy’s recovery is gathering steam, a wave of eager buyers, many of them seeking their first home purchase, remain determined to find their next home. But with relatively few for-sale homes on the market, bidding wars have become increasingly common, pushing sale prices higher and leading homes to sell at a record pace.”

Speakman said it appears “unlikely” that these upward price pressures will relent — particularly as recent drops in mortgage rates are offering home shoppers increased buying power.

“Some recent signs suggest that the historically tight inventory pressures may finally be starting to ease,” he said. “Should those signs materialize, the meteoric rise in home prices may finally have a reason to come back down to earth. For now, red hot home price appreciation shows few signs of cooling.”

The Renters on the Move study reveals nearly 22% of renters moved to a larger unit in the past year.

“2020 was a life-changing year for people, industries, and businesses across the globe,” says Chase Harrington, Entrata’s president and chief operating officer. “Our survey of U.S. renters shows that many moved to larger spaces to accommodate work from home needs, moved back to hometowns, and some even moved to the city to take advantage of lower rental rates. We’re seeing a shift in the industry as renters look for more flexible leasing options and think differently about apartment amenities.”

Out of the American renters who participated in the survey, nearly 22% had moved to a larger apartment with more space between March 2020 and March 2021. Another 56% were planning to make a move post-pandemic, and 14% of Gen Z respondents said they had moved in back in with their parents. Main reasons cited for currently renting instead of owning include an inability to afford a down payment (39%) and the expense of homeownership (33%).

On the lighter side....
About CALCAP Advisors
California Capital Real Estate Advisors, Inc., and its affiliate entities (CALCAP Asset Management I & II, CALCAP Properties, CALCAP Lending, and CALCAP Senior Healthcare I, collectively known as "CALCAP"), is a California based investment company founded and 2008 and headquartered in Pasadena, California. The Company sponsors alternative real estate investment opportunities focused on demographically driven housing. CALCAP has been able to consistently provide both individual and institutional investors with outstanding returns over the last 10 years. The Company's core strategies look to actively create alpha for investors while managing risk. CALCAP currently has over $350mm in Assets Under Management. To learn more visit
Social Mission
CALCAP has created the CALCAP CARES program to encourage employees to find a way to give back to the neighborhoods where we invest. CALCAP has created "GiveTime4Autism" as its initial program which will allow employees the ability to donate unused vacation and sick days for a very worthy cause.
The Sanborn House
65 N. Catalina Avenue   
Pasadena, CA 91106

12626 High Bluff Drive, Suite 360
San Diego, CA 92130 

740 N. 52nd Street
Phoenix, AZ 85008 

1309 State Street, Suite A
Santa Barbara, CA 93101

92 Argonaut, Suite 205
Aliso Viejo, CA 92656

Edward M. Aloe, Founder & CEO
(626) 229-9057

Patrick A. Wakeman, Principal
(858) 764-4890

Drew Buccino, Principal and COO
(602) 419-3381

Greg Blix
Director of Investor Relations
(805) 896-8500

Len Israel

Mark A. Mozilo, Principal
(626) 229-9056
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