CALCAP Connections                           October 2019

The Upside-Down World of Negative Interest Rates

There has been much talk lately about negative interest rates. The latest estimates show that there is now $17 Trillion of negative yielding bonds around the globe. There are a variety of forces pushing down global rates. Among them, central banks cutting rates, and a heightened demand for safe assets. A slow- down in inflation growth, combined with fears of potential global recession, have created a strange environment where investors are willing to purchase highly rated fixed income securities at almost any price. Thirty percent of all investment grade securities now bear sub-zero yields, meaning that investors who acquire the debt and hold it to maturity are guaranteed to make a loss!
Most economists don't think we will see negative interest rates in the U.S., despite pressure from President Trump. His rationale is that a strong dollar makes U.S. products more expensive, putting us at a trade disadvantage. By cutting rates, the dollar will weaken, and our exports will become cheaper on the international markets. Federal Reserve Chairman Jerome Powell dismissed the idea that the U.S. central bank would use negative rates to combat a downturn. "It's something we didn't see as an ideal tool in our institutional context," remarked Powell. But, signs like the inverted yield curve, could ultimately change that narrative.
A Denmark bank recently announced that it will offer a 10-year mortgage at a rate of negative 0.5%. Another Danish bank said it will begin offering a 20-year fixed rate mortgage with 0% interest and a 30- year mortgage at 0.5%. When a mortgage rate is negative, a borrower still must make monthly payments toward their principal, but they ultimately pay back less than they originally borrowed. They would, of course, still have to pay fees and other costs. On a recent CALCAP apartment acquisition we were able to lock in a Fannie Mae 12-year fixed rate loan in the amount of $20mm at a rate of 3.41%! All this points to investors running scared of the market situation and believing that it will take a very long time for things to improve.
It appears that we are heading into a prolonged period of tepid growth. This is bad news for savers, as expected returns on retirement savings, as an example, may not go as far as originally predicted. As prudent users of debt, CALCAP would likely benefit from a continued drop in rates, although asset prices will likely continue to remain elevated, as a result. In Denmark, the zero-interest rate environment has caused home prices to increase in cities like Copenhagen, as borrowers can afford pricier homes. The Danish Financial Supervisory Authority has taken measures to now prevent a potential housing bubble!
In a yield-starved future, we believe it will be more important than ever to diversify your holdings and consider a heavier allocation towards Alternative investments. CALCAP's strategy of owning Class B apartment properties will probably be less volatile on a day-to-day basis than publicly traded equities. We feel that multifamily, as a longer term buy and hold investment, offers valuable diversification and stability that can help reduce downside risk. We also offer investments in real estate debt, through the CALCAP Income Fund I. This vehicle provides monthly distributions to investors who are seeking current income. The Fund is secured by underlying real estate collateral at an average loan-to-value of 65%. The Fund is currently paying a 7% return. We believe this is a compelling return on a risk-adjusted basis.
Finally, CALCAP is pleased to announce the launch of the new and improved CALCAP Investor Portal, powered by Juniper Square. If you are currently an active investor with us, you will be provided user log in credentials shortly. We are excited about the technology that this new platform offers, and we believe it dramatically enhances the investor experience. Some features include the following:
  • Consolidated dashboard with improved graphics
  • User enabled investor statements
  • Timely transaction reporting (for contributions and distributions)
  • Asset level drill down functionality
Thank you for your continued support.
If you are interested in learning more about what we do, please visit us at
Edward M. Aloe     
President and CEO  
Check Out CALCAP's new website! 

Latest Headlines...

Trump: Fed is "derelict in duty" if it doesn't slash rate
The president advocates for below-zero interest rates, using Germany as an example
President Donald Trump tweeted at 10:20 a.m. on Thursday: "The Federal Reserve is derelict in its duties if it doesn't lower the Rate and even, ideally, stimulate. Take a look around the World at our competitors. Germany and others are actually GETTING PAID to borrow money." 
View Article Here  
Five Questions To Ask About Owning Multifamily Real Estate For Cash Flow  
Homeownership rates have stalled at 64.2%. As of Q3 2018, just 56% of families could afford to buy a home based on their incomes and current interest rates - down from 78% in 2012. Rental activity has spiked, with over 900,000 renting households added year-over-year between 2010 and 2016. Housing affordability is in crisis. Nearly three out of four American households are concerned about the lack of affordable housing, driving fierce demand for older Class B and C properties. 
View Article Here
Harvard: Number of cost-burdened senior households hits all-time high
Affordable housing options for seniors are becoming harder to find
The Department of Housing and Urban Development defines cost-burdened families as those who use more than 30% of their income to pay for housing. With the increase in numbers of households 65 and over, the study noted that a widening gap in housing inequality is becoming more apparent. 
"Within the next decade, some 18 million adults will be in their 80s - many living alone and on limited incomes. The need for affordable, accessible housing and in-home supportive services is therefore set to soar," the report states.  
On the lighter side....
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 $300mm 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.  

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