Remember back before the pandemic when it was rare to walk into a grocery store and see empty shelves? Then in March of 2020, social media was flooded with photos of empty racks where toilet paper and wipes used to live. Since then, we have almost come to expect a shortage of supply of household goods. The global supply chain has run amuck due to lockdowns, strikes and geopolitical stress, particularly between the US and China.
Historically, it was the Japanese car manufacturers who pioneered “just in time” delivery in the 70’s in order to cut waste by supplying parts only as and when the process required them. The strategy quickly caught on across the globe and as such, corporations looked far and wide across the globe for the best (cheapest) sourcing partners.
Just how messy is the supply chain breakdown? According to The Economist, a global supply-chain pressures index shows that the highest ever reading of the index was back in April of 2011 when the earthquake and ensuing tsunami in Japan pushed the index up 1.7 standard deviations above the average. In 2020, it jumped to 3.9 standard deviations and, fast forward to today, it is pushing even higher, at 4.4 just in October 2021, showcasing an increased level of stress on supply chains globally. Experts are saying that they see no end in the short to medium term- at least until our country onshores more materials that the country needs. And, add on further complexities: one alarming fact is just considering the dilatipated nature of our countries’ infrastructure. Our ports, for example, operate at the same throughput as ports in Kenya while other European ports, such as the Netherlands, have been fully modernized for years. Container ships essentially are being delayed to offload their goods due to infrastructure failures.
How does this affect real estate investors? First it means that we will have difficulty getting the important parts to maintain and upgrade our properties. Refrigerators or stoves may not be delivered in time. Little things like door hinges or electrical wiring may not be immediately available when we need to turnover a unit for a new tenant. We want to be ready to make upgrades in a timely manner.
At Westland, we are always troubleshooting; it’s part of our DNA. In fact, the driving force behind launching our in-house property management arm, Centro, was because we felt like we could solve maintenance and occupancy rates better ourselves than an outsourced firm. So what exactly can a real estate investment firm do about supply chain challenges? In short, we can plan for it. We know that we will have apartments turn over that require upgrading in the coming year – along with newly acquired buildings that we will want to upgrade – which means we know we will need new appliances, tile, carpet, paint and more. So rather than waiting for that moment when we need materials and trying to source “just in time,” we are building inventory to plan for it. When we saw the beginning of the supply chain breakdown, we began acquiring inventory that we know we will need and use when we begin upgrades. This upfront investment saves us time, money (and anxiety!) down the road, so that we are ready to complete upgrades and get our housing inventory back on the market for residents as efficiently as possible.
In addition, the supply chain crisis means that new construction has been drastically curbed, as materials such as wood, metal and cement are in high demand. Our strategy of investing in underperforming buildings and upgrading them so that residents feel proud of their homes is a perfect match for what is happening with global supply chains. Upgrades require far less materials (or labor) than new construction, which makes for superior investing.
Once again, our years of experience come to the rescue. We know that we can troubleshoot most any problem that comes with constantly changing markets and conditions. In fact, we have learned to pivot and thrive when the tides change. To learn more about our smart real estate investment strategies, contact me at carson@westlandinvestors.com.
Photo credit: NPR
