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Entering 2023 with Confidence: A Letter to the Investors

By Clay Grubb, CEO

Against a backdrop of economic uncertainty and rising interest rates, CEO Clay Grubb’s third quarter letter to investors sounded notes of caution, even as he remained optimistic about Link Apartments℠ and essential housing over the long term. An excerpted version of the letter is below.

Dear Investors, 

The significant inflation we experienced over the past year – and a vigorous Federal Reserve response that is likely to cause a housing recession – underscores the not-so-old adage “what happens elsewhere matters to Grubb Properties.” I don’t want to sugarcoat the headwinds of a housing recession, but I do want to assure you we have taken prudent actions to protect our assets and maximize their value.

First, let me describe what we see as the challenges, and then explain how Grubb Properties is responding.

Interest Rate Hikes Take a Toll on Real Estate Markets

Inflation has greatly increased the value of hard assets, but the Fed appears committed to breaking its back at any cost. As a result, we have entered what I call an asset recession, where we see real estate values start to drop. While no one can predict the future, we can look at the various signs to make educated assumptions. The current markets are showing gold mining stocks down 50%, publicly-traded REITs down 30% to 50%, and some commodities like lumber down more than 70% off their peak valuations. The market sentiment has always been, “Do not fight the Fed” and it seems clear that the Fed is going to win its battle against inflation. 

Meanwhile, world events like Russia’s war with Ukraine have caused relentless inflation for food and energy prices. Since housing makes up the next-largest part of the Consumer Price Index, the Fed must create a housing recession to win its battle against inflation, and the latest indicators suggest the central bank is having its desired impact. According to the Wall Street Journal, demand for apartments in the third quarter fell to its lowest level since 2009. According to Yardi, September witnessed a decline in luxury apartment rents nationally by 0.3%, and median national list price for homes declined to $427,000 from a peak of $449,000 in June 2022. More importantly, home sales dropped to a 10-year low, so that 5% decline in prices is nowhere near the true decline due to the lack of transactions. Therefore, I believe the housing recession began in the third quarter, and we cannot predict where the bottom will occur. More dangerously, the Fed’s rate increases are going to stop construction, which will exacerbate the housing supply and demand imbalance even further, resulting in housing inflation being hard to tame further down the road and dashing the hopes of economic mobility for many Americans. 

Confidence in Gateway Markets and Essential Housing

Our belief is that the greatest stress will come in the markets that saw the greatest run-up in values, such as Florida and Idaho, markets where we do not have any investment exposure. We think the gateway markets where we’ve been focusing – such as California and New York – will continue to see price appreciation, primarily driven by the return of immigration and the desire of young folks to leave their parents’ homes for these vibrant urban markets. 

We also maintain our confidence in the “essential housing” category, which includes Grubb Properties’ Link Apartments℠ format. This is bolstered by the fact that workforce housing, which we consider our essential housing to be a component of, saw a 0.2% increase in rents nationally in September. We believe creating value-based housing options results in an investment that is more resilient than any other housing type. 

The Strength of our Culture

The old saying is “culture eats strategy for breakfast.” At Grubb Properties, I cannot be more pleased with the strong culture we have nurtured over our 60-year history. We know great results can be achieved only if you have great team members. I am pleased to announce that on our most recent employee engagement survey, the highest-scoring questions for the company were:  

  1. I am proud to work for this organization.
  2. My immediate coworkers and I work well together as a team.
  3. My supervisor treats me fairly.

We also asked specific questions on diversity and inclusion and were very pleased that 98% of team members said they feel accepted for who they are at work. Finally, the survey showed that Grubb Properties is a great place to work, and 99.5% of team member respondents said they would recommend that a friend or family member work here.

As always, I am greatly appreciative of the support each of you provides us. We do not relish the current economic climate, but please know we are always dedicated to trying to maximize the value of each asset in which we are entrusted. 


Clay Grubb CEO,
Grubb Properties

Clay Grubb

Chief Executive Officer of Grubb Properties