“Your new comfort zone is being out of your comfort zone.” Our team embraced this mindset while starting a new line of business in a bank in the 1990s. We had a solid plan and sufficient resources, but turning a great idea into a sustainable business is never certain. We focused on core strengths and always putting our clients first, embraced the uncertainty that fueled our creativity and problem-solving skills, and positioned the business for resilient growth. By embracing this discomfort and solving the typical challenges of a startup, we successfully built that business which created the core of what Citymark Capital is today.
The uncertainty of today’s economy creates discomfort for many. Since the Federal Reserve increased interest rates 500 basis points at the fastest rate in over four decades, business leaders and professionals have been thrust outside of their comfort zones, freezing the transaction market in ’23 and creating continued uncertainty in ’24. Even with the expected modest rate cuts in ’24, it is likely that the uncertainty will continue for the remainder of the year. It has forced the repositioning of business strategies, career trajectories and even personal goals — just ask anyone trying to buy a house today.
However, dealing with uncertainty and keeping conviction in one’s perspective can lead to amazing results. One of my favorite movies is Apollo 13, which chronicles the inspirational true story of how the earth-based NASA crew worked with the crew on the moon-bound spacecraft to return the ship back to Earth after an explosion onboard. The NASA team quickly accepted the uncertainty of the new reality and worked together under tremendous time constraints to save the astronauts’ lives by rethinking how to use the resources they had.
While not a matter of life or death like on Apollo 13, business leaders assembled at annual industry conferences in the first quarter of ’24 to gather information on navigating today’s economic challenges and find paths for successful missions. Some common themes emerged:
1. Muted optimism for a better ’24 over ’23 as interest rate pressures will force transactions to occur.
2. Those with investment capital will be able to capitalize on potential market dislocation.
3. Potential Fed rate cuts are expected to create a more favorable capital markets environment, but the cuts will not be sufficient to drive a robust dealmaking environment for acquisitions, mergers, and IPOs.
4. Fed monetary policy will remain mostly restrictive, U.S. fiscal policy permissive, especially during an election year when there is no political upside to implementing austerity measures.
5. The combination of restrictive monetary policy and permissive fiscal policy will keep the economy operating in a slow growth environment and businesses may need to cut costs.
6. Restrictive monetary policy will create some opportunities to purchase distressed assets and create some interesting M&A opportunities.
7. Investment returns in credit vehicles may equal or exceed equity investment returns which happens every 10-15 years.
Many of the best ideas and future drivers of growth emerge from challenging situations, especially through collaboration with trusted and talented partners. Times like this can galvanize teams, companies and families. They say that it takes great pressure to create diamonds.
Citymark is a real estate fund manager headquartered in Cleveland that provides joint venture equity for value-add, multifamily investments, executed by experienced regional and national operating partners.
