Jacob Frydman on Tips on Protecting Your Lease from Inflation

Frydman has repeatedly warned that an inflationary period in the real estate market is inevitable.

Property developer and investment expert Jacob Frydman has recently been asked to speak upon inflation-protected leases, hoping to help property developers and residents alike from steepening inflation rates. Mr. Frydman is regularly called on to publicly weigh in on the status of the market, especially in the wake of the upheavals of the Great Recession and after. One point he frequently advises on is the effect of inflation in real estate, namely an expected upcoming increase in real estate costs gradually hitting the market and what changes it will cause on traditional investment models.

Jacob Frydman has repeatedly warned that an inflationary period in the real estate market is inevitable, at least in part due to rising interest rates. Rates have remained low for quite some time, aided by the Federal Reserve, but are slated to rise and bring property values up. However, Frydman points out that the market is by its very nature cyclical and provides tremendous opportunity even with expected downturns. “What’s ultimately going to happen is an inflationary cycle not unlike what we were experiencing in the late 70’s and early 80’s,” he told an interviewer at Real Estate Finance Intelligence TV. With this in mind, Frydman advises potential investors to purchase properties while the costs are still relatively low and strengthen their asset values during the transition period from one cycle into the next until the market reaches a new high again. Frydman predicts this next peak to take place by the end of this decade.

Consistently championing acquiring inflation protected leases as not only a stop-gap against loss, but as a measure of ensuring continued returns in a shifting market is one of Jacob Frydman’s specialties. An ever-present danger for investments in real estate during an inflationary cycle are losses from stagnant rents, compounded by continuously rising interest rates and property values. The cost of doing business can eventually outpace returns, but being able to raise rents accordingly can help ensure net gains. “The real money in commercial real estate over the next several months or years will be in inflation protected leases,” Frydman says in an interview with Bloomberg TV, “i.e. properties with leases where you can increase rents either like apartment buildings – short term duration - or hotels or industrial assets where you can build in a CPI increase into your rents.” Many other experts, such as Dr. Martha Peyton of TIAA-CREF and Brad Case of NAREIT, have identified commercial real estate in general as a historically proven “hedge” against inflation for investment portfolios, making Mr. Frydman’s predictions that much more important.

Jacob Frydman has over 30 years of experience in structuring, financing, and executing highly complex real estate transactions. He is credited with acquiring over five million square feet of existing and to-be-developed holdings located on the east coast of the United States, and has participated in property transactions valued at over $2 billion. Frydman was the CEO and Chairman of First Capital Real Estate Trust, a public Real Estate Investment Trust, and continued on as Chief Investment officer after his retirement in September 2015.

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