Beating Stagflation With Class A Multi-Family Residential Property

The winds of economic change have stiffened this past week as the major averages plummeted to new lows for 2022, breaking key support levels after the CPI data torpedoed any hopeful narrative that peak inflation occurred in the April-May time period. Instead, the May data revealed broad price increases that triggered widespread selling of both stocks and bonds.

There are multiple views as to how the elevated inflation cycle may play out, but the growing opinion seems to be that it is anything but transitory, and could well last into 2024, particularly if the war in Ukraine, Covid lockdowns in China, global food shortages and increasing wages all continue to persist. As of this week, there is little evidence that any relief from these adverse macroeconomic conditions is in sight.

Adding fuel to the fire, bond yields are trading at the highest levels year-to-date; bond vigilantes have pulled out the long knives and are now holding the financial engineers of lower rates and issuers of plentiful money accountable. According to the Atlantic Council, a nonpartisan U.S. think tank, over $26.7 trillion of quantitative easing (QE) has been created by global central banks since the fall of Lehman Brothers in 2008 with $11 trillion alone during the pandemic. Source: https://www.atlanticcouncil.org/global-qe-tracker/

Data provider Trading Economics is reporting that annual inflation is now running at 8.6% in the U.S., 8.1% in the Euro Area and 9% in the UK (Source: https://tradingeconomics.com/country-list/inflation-rate), and on June 1st the Fed began quantitative tightening (QT), with the planned sale of $47.5 billion of assets per month for the next three months (off their $9 trillion balance sheet) and $95 billion a month thereafter. The ECB also came out last week with their plan to raise three key interest rates by 25 basis points starting in July. This approach to tamping down inflation is, I think, akin to taking a squirt gun to a conflagration.

Effective Monday, the Fed seems to have lost all control of the bond market as yields spiked and equities tanked. The saving grace in all of this chaos is that asset appreciation during the past 14 years since the Great Recession has been explosive, and investors can take formidable action and book long-term capital gains in stocks, bonds, collectibles and other appreciated assets that have probably peaked for this particular cycle.

The really good news I bring today is that history is fully on the side of owning real estate during extended periods of stagflation. In the 1973-1974 period when the rate of inflation was 8.8%, the only asset classes that kept up with or exceeded the annual rate were oil, soft commodities, copper and real estate in all its forms.

I find this look back very insightful given that my company, Belpointe PREP, LLC (NYSE American: “OZ”), may be in the sweet spot subsector of the greater real estate universe—developing and acquiring multi-family residential Class A income-producing properties located in some of the most thriving cities in the U.S. At this point in time, against the current investing landscape, I would argue strongly that ownership in domestic upscale full-featured apartment properties, where the rental income is indexed to inflation, may be an opportune asset class of choice for certain investors.

Considering the other asset classes that kept up with or ahead of inflation back in 1973-1974, unless one is a whip-smart seasoned commodities trader, I think there should be there is little discussion about what will work best in times such as the present. And I’m not talking about the expanded REIT industry, where rising rates go against owners of long-term leases of industrial parks, shopping malls, office complexes and medical facilities. I am solely highlighting the virtues of owning essential living quarters in strong labor markets within vibrant and growing cities where rents are adjusted for inflation in the span of months. There is a notable difference in the sub-categories here.

I think this also speaks to why Belpointe PREP, LLC’s (NYSE American: “OZ”) Class A units are trading so close to their net asset value/IPO price of $100 per unit. I think serious investors are ready for liquid assets that include tax deferral features as well as the potential for long-term growth and income. And I think it’s this combination of tax-sheltered incentives and capital appreciation prospects in an asset class that has been through the inflation litmus test that makes the market for OZ Class A units attractive.

So, let’s get right to it. Belpointe PREP (NYSE American: “OZ”) is the first and thus far the only publicly listed QOF and it requires no paperwork to invest. Belpointe PREP provides investors with the ability to pair off 2021 year-end gains (as well as year-to-date 2022 gains), using a 180-day look-back window, and reinvest those capital gains to defer taxes, in addition to offering investors an opportunity for growth and income, out to December 31, 2026, where all capital appreciation and the majority of pass-through income may be tax-free.

Just a heads up—the 180-day window to shelter capital gains realized from December 31, 2021 is closing. But there is still two weeks of time to allocate year-end 2021 capital gains in all asset classes: stocks, bonds, real estate, sale of a business or a partial stake, precious metals, crypto profits, livestock, and collectibles; they all qualify and realized capital gains from any of them can be offset with like-kind dollar amount purchases of Belpointe PREP (NYSE American: “OZ”). Call me if you have any questions about whether assets that you’ve sold between December 15-31, 2021 qualify.

In addition, Belpointe PREP’s management team is actively seeking to acquire other QOFs that have stabilized their properties, where there are some clear benefits to acquiring seasoned properties in lieu of new construction with all its attendant risks. Our acquisition team is actively looking for sellers of properties within Opportunity Zones. Belpointe PREP has cash and currency in the form of its Class A units “OZ” that provide the kind of liquidity that some selling parties may desire.

Cody H. Laidlaw
Editor-in-Chief
Belpointe OZ
255 Glenville Road
Greenwich, CT 06831
T: (203) 883-1944
E: IR@belpointeoz.com

Disclosure: Cody H. Laidlaw is the Chief Investor Relations Officer. Cody is also an investment advisor representative with Seaside Advisory Services, Inc. (d/b/a Seaside Financial & Insurance Services), a SEC registered investment adviser offering advisory accounts and services, and holds a long position in Belpointe PREP, LLC’s Class A units.

Important Information and Qualifications

Belpointe PREP, LLC (“Belpointe PREP”) has filed a registration statement (including a prospectus) with the U.S. Securities and Exchange Commission (SEC) for the offer and sale of up to $750,000,000 of Class A units representing limited liability interests in Belpointe PREP. You should read Belpointe PREP’s most recent prospectus and the other documents that it has filed with the SEC for more complete information about Belpointe PREP and the offering

Investing in Belpointe PREP’s Class A units involves a high degree of risk, including a complete loss of investment. Prior to making an investment decision, you should carefully consider Belpointe PREP’s investment objectives and strategy, risk factors, fees and expenses and any tax consequences that may results from an investment in Belpointe PREP’s Class A units. To view Belpointe PREP’s most recent prospectus containing this and other important information visit sec.gov or belpointeoz.com. Alternatively, you may request Belpointe PREP send you the prospectus by calling (203) 883-1944 or emailing claidlaw@belpointe.com. Read the prospectus in its entirety before making an investment decision.

This communication, including any links embedded herein, may not be distributed in any jurisdiction where it is unlawful to do so. Nothing in this communication is or should be construed as an offer to sell or solicitation of an offer to buy Belpointe PREP’s Class A units in any jurisdiction where it is unlawful to do so.

Neither Belpointe PREP nor any of its affiliates provide investment or tax advice and do not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should consult their own investment and tax advisers concerning the U.S. federal, state and local income tax consequences, as well as any tax consequences under the laws of any other taxing jurisdiction, in relation to their personal tax circumstances, which may vary for prospective investors in different tax situations.

This communication may contain estimates, projections and other forward-looking statements, typically identified by words and phrases such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” or the negative of such words and other comparable terminology. However, the absence of these words does not mean that a statement is not forward-looking. Any forward-looking statements expressing an expectation or belief as to future events is expressed in good faith and believed to be reasonable at the time such forward-looking statement is made. However, these statements are not guarantees of future events and involve risks, uncertainties and other factors beyond Belpointe PREP’s control. Therefore, we caution you against relying on any of these forward-looking statements. Actual outcomes and results may differ materially from what is expressed in any forward-looking statement. Except as required by applicable law, including federal securities laws, Belpointe PREP does not intend to update any of the forward-looking statements to conform them to actual results or revised expectations.

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