The 1970s and 80s were a whirlwind for the economy, defined not just by tremendous 70s style, Disco, Star Wars and fantastic 80s rock, but by double-digit inflation and record-breaking interest rates. For many, it was a time of financial chaos. For savvy real estate investors, however, it was also a time of extraordinary opportunity. The period serves as a reminder that with the right strategy, even turbulent markets can yield incredible rewards - a period analogous, in many ways, to the markets we’re living through today.
How Inflation Transformed Real Estate in the 1970s
The 1970s were a perfect storm of economic volatility: inflation climbed to double digits, fueled by oil shocks, supply chain disruptions, and expansive monetary policies. This period was punishing for consumers, but for real estate investors that were prepared and took the proper actions, it presented unique advantages.
Property values surged as inflation drove up the cost of materials and replacement values. Rents followed suit, often rising in lockstep with inflation. Those who had locked in fixed-rate loans before the inflation spike found themselves in an enviable position, paying back debt with “cheaper” dollars. Of course, inflation also ballooned operating expenses, creating challenges for unprepared investors. For those with foresight, the decade rewarded patience and planning.
The 1980s: High Interest Rates, Big Opportunities
When inflation proved stubborn, the Federal Reserve, led by Paul Volcker, responded with a dramatic rate hike strategy, sending mortgage rates soaring above 18%. This sharp rise in rates had a profound and immediate impact on property values across the United States. Affordability plummeted, sidelining prospective homebuyers and forcing sellers to lower prices to attract interest. In some regions, residential property values fell by 10-15%, while commercial real estate suffered even steeper declines, with values dropping up to 20% in certain markets. The combination of reduced demand and skyrocketing borrowing costs created a buyer’s market for those with cash or creative financing, but for many over-leveraged owners, the era was financially devastating. The high-rate environment not only repriced assets but also reshaped the real estate industry, as investors scrambled to adapt to the new economic reality.
But for those with cash or creative financing strategies, the 1980s were a gold mine. This is when legends like Sam Zell and Donald Bren not only survived but thrived.
Sam Zell: Dancing on the Grave of Distress
Known as “The Grave Dancer,” Sam Zell built his empire during periods of uncertainty. Zell’s genius lay in his ability to spot undervalued assets. As developers and over-leveraged owners buckled under the pressure of high interest rates, Zell swooped in, acquiring distressed properties at a fraction of their value.
For his existing portfolio, Zell employed operational efficiencies, streamlining expenses and focusing on long-term cash flow. He often restructured debt creatively, leveraging relationships with lenders to secure terms that worked in a high-rate environment. By staying agile and thinking long-term, Zell turned the challenges of the 1980s into opportunities to expand and strengthen his holdings.
The Irvine Company: Financial Discipline Pays Off
Donald Bren’s Irvine Company took a different but equally effective approach. Already controlling a vast portfolio of Southern California properties, Bren prioritized financial discipline. By avoiding excessive leverage and focusing on high-quality, income-producing assets, the Irvine Company was well-insulated from the shock of rising interest rates.
Bren’s strategy was grounded in patience. Rather than chasing rapid expansion, the company took a long-term view, ensuring it could weather economic turbulence. When opportunities arose—such as undervalued properties distressed by rate hikes—the Irvine Company was prepared to act decisively, adding to its portfolio without overextending.
The Persian Diaspora: Timing Meets Opportunity
One of the most fascinating examples of resilience and opportunity during this period is the story of the Persian diaspora (of special importance to me, being married into an Iranian-American family). Following the Iranian Revolution of 1979, many wealthy Iranian refugees fled to the United States, particularly to Los Angeles. Armed with liquid capital and an entrepreneurial mindset, these individuals arrived just as interest rates were peaking.
High borrowing costs had depressed real estate prices, creating a buyer’s market for those with cash. The Persian diaspora seized the opportunity, acquiring properties in neighborhoods like Beverly Hills and Westwood at bargain prices. Their investments not only preserved wealth but also established a foundation for generational success. Today, the Iranian-American community is a significant force in Los Angeles real estate—a testament to their strategic timing and decisive action.
Lessons for Today’s Investors
The inflationary and high-interest environment of the 1970s and 1980s taught us several enduring lessons about navigating uncertainty:
Cash Is King: In times of economic stress, liquidity creates opportunity.
Debt Discipline Matters: Fixed-rate financing and conservative leverage are key to surviving volatile markets.
Creativity Wins: From restructuring debt to crafting unique partnerships, adaptability is an investor’s greatest asset.
Focus on the Long Game: Whether preserving cash flow or acquiring undervalued assets, successful investors think beyond the next market cycle.
History as a Guide
Real estate’s resilience during the 1970s and 1980s proves that even in turbulent times, opportunity abounds for those willing to think strategically and act decisively. Whether you’re preserving an existing portfolio or hunting for deals, the key is preparation and a deep understanding of market dynamics.
At Lombard Equities, we find ourselves in a similar position to many investors during the 1970s and 1980s. On one hand, it’s important to manage currently owned assets to great success - focusing on operational excellence, carefully managed debt and performance. On the other hand, the timing to acquire new buildings has never been better - it’s not quite an 18% mortgage environment, but the opportunity set is still massive.