Offerd’s Post

Nice read from JP Morgan detailing the four phases of the real estate cycle and how understanding each can help inform investment strategies. Highlights include the varied responses of different asset classes to economic conditions (e.g. industrial, retail, and office properties are more sensitive to macroeconomic factors; residential is less so – people always need housing) – and the importance of good cash management throughout. #CommercialRealEstate #RealEstateCycle #InvestmentStrategies #CashManagement #MarketInsights #JPMorganChase The article is here: https://lnkd.in/eE8tqRM7

IRR Insights   As we navigate 2024, it's essential to reflect on how commercial real estate expectations have evolved from 2023 to now. A source I love is Integra Realty Resources (IRR), so I thought I'd put together a little comparison of their year-in insights and see how these stand against the current market reality.   2023 Expectations - Interest Rates: Anticipated hikes to curb inflation affected borrowing costs and investment decisions. - Market Recovery: Continued post-COVID recovery, with stabilization in hospitality, multifamily, and industrial sectors. - Capital Markets: Cautious optimism with hopes of interest rate stabilization by year-end.   2024 Predictions - Higher for Longer: Continued high interest rates affecting capitalization rates and investment strategies. - Market Volatility: Expected in sectors sensitive to economic fluctuations, like hospitality and multifamily. - Investment Focus: Shift towards safer havens and distressed assets.   Current Market Reality (June 2024) - Interest Rates: High borrowing costs persist, increasing the risk premium required by investors. - Hospitality Sector: Moderate growth in RevPAR, driven by ADR increases but flat occupancy rates. - Multifamily and Industrial Real Estate: Continued supply-demand imbalance and cautious investment. - Capital Markets: Challenges for REITs and CMBS with rising delinquency rates in retail and office sectors. Conclusion The commercial real estate market in 2024 remains cautious with strategic repositioning. The sustained high interest rates and cautious investment climate predicted by IRR have largely materialized. Investors need to focus on disciplined strategies and prudent capital deployment.

Summarizing recent article from Scott Rechler, CEO of the commercial real estate giant RXR: CRE leaders are grappling with rising interest rates, increased operational costs, and the impact of new fundamental human/consumer/tenant patterns post-COVID. These shifts directly impact CRE operations and investment trends. 📈 Facing Challenges Head-On: With a significant portion of CRE debt set to mature in 2024, the industry is bracing for refinancing amidst higher rates and regulatory pressures. These challenges underscore the need for strategic financial planning and adaptability. 💼 Embracing Innovation: Despite the hurdles, there's a clear emphasis on innovation and adaptation. Ideas include exploring mixed-use conversions, identifying undervalued assets, restructuring capital. There's ample opportunity for creative solutions and strategic investments. 🌐 Optimism for the Future: There's an underlying sense of optimism for long-term growth and resilience within the CRE industry. Stakeholders are poised to navigate through this period of transformation with resilience and determination. https://lnkd.in/d7YtJx2e

What's on the cards for the commercial property investment market this year, then? We asked one of our partners, Chris Donabie... And this is what he has to say on the matter: - On the investment front, 2023 was a difficult year. Rising interest rates and persistent high inflation resulted in significantly fewer investment transactions. - With inflation coming down and a predicted lowering of interest rates through 2024 - this will help to stimulate the market. - Investors should find good opportunities in 2024 because borrowers with high loan to values (LTVs) and looming refinancings will be under pressure from higher interest rates and potentially lower property values. Many of these investors will need to put more equity in - or risk distress - which could lead to some interesting opportunities arising in the market. - Higher interest rates mean that debt-buyers have largely been out of the market which has contributed to discounted values. Equity-backed buyers should benefit from discounted prices. - The gap between buyer and seller aspirations should close, with a greater number of deliverable deals in 2024 as a result.  - In terms of sectors, we expect that the industrial and residential sectors will remain popular with investors as they both still have greater potential for rental growth. - The sustainability agenda continues to have an impact on investor appetite when pricing assets. This is particularly the case in the office and retail sectors. Indeed, rising interest rates have meant that it is more costly to refurbish or repurpose older buildings and investors are still not clear about improvements they need to make to meet ESG targets. This will continue to impact on value particularly with older, secondary and tertiary office and retail assets. - With a general election not far off and the Tories trailing in the polls, the spring budget could be interesting as the government look to improve their popularity. Could they be about to offer some sweeteners to the property sector? #2024predictions #commercialproperty #investmentproperty #capitalmarkets Fergus Laird Chris Pearson Angus White Keith Stewart

Insightful commentary from Chris Donabie

This is the moment the CRE industry has been waiting for. Brace yourself for the Waterfall Effect in CRE. Is the commercial real estate market about to see a massive shift? Cushman & Wakefield CEO Michelle MacKay thinks so, and she calls it the "waterfall effect." 👇🏾Here’s the breakdown: 1️⃣ Reduction in Interest Rates: When the Fed cuts rates, borrowing becomes cheaper. This reduction can stimulate investment in commercial properties. 2️⃣ Increased Investment and Transactions: Lower borrowing costs lead to more real estate transactions. Investors are more likely to buy and develop properties when financing is affordable. This surge boosts leasing and capital market revenues. 3️⃣ Enhanced Market Optimism: Anticipation of rate cuts can boost market sentiment. Investors and companies get more optimistic, leading to aggressive investment strategies and larger deals. 4️⃣ Improved Property Values: Increased demand due to cheaper financing can drive up property values. This appreciation benefits existing property owners and spurs further investments. 5️⃣ Stabilization of Capital Markets: Lower cost of capital improves market liquidity and stability. This creates a more dynamic and fluid market environment, supporting long-term growth and resilience. 💦 The "waterfall effect" triggered by an interest rate cut could lead to a cascade of increased investment, higher transaction volumes, improved market sentiment, rising property values, and more stable capital markets. ❓What do you think? Are we on the brink of a CRE boom or just more empty promises? ⬇️ Share your thoughts below. #CRE #RealEstate #Investment #Economy #FedRateCuts

Office is NOT the only sector where distressed opportunities will be found. Very insightful article from PERE citing Ralph Rosenberg and Roger Morales of KKR: Borrowers in even the most desirable sectors, including multifamily, industrial, self-storage and data centers, are facing surging borrowing costs. As healthy operators and quality assets continue to get squeezed in this massive deleveraging cycle, opportunities will arise to buy "high quality assets at fair prices." Our real estate practice at Allen Matkins is confirming this trend. Markets are beginning to thaw. Get your checkbooks ready. #allenmatkins #kkr #pere #cre #commercialrealestate #institutionalinvesting

On a cumulative total return basis, public real estate has outperformed its private market counterpart by nearly 33% over the last six quarters. Despite this outperformance, the public-private valuation divergence also continues. With cap rate spreads remaining wide, there is likely more fuel in the tank for REIT outperformance in 2024. https://bit.ly/3LUUiwO

Happy to share our latest article featured on Family Wealth Report discussing the current state of private real estate and the potential opportunities available. Check out the article here: https://lnkd.in/dEtCx3dV. #realestate #investmentopportunities #alternativeinvestments #institutionalinvestors #privatewealthmanagement

New Post: REITs set to outperform in 2024 says Hazelview Investments - "The shifting tides of economic and monetary conditions, coupled with compelling valuations, create a canvas for strong performance in the REIT market in 2024," says Corrado Russo, managing partner & head of Global Securities at Hazelview Investments. "Navigating this landscape with precision and seizing the opportunities it presents defines our approach. This is not just a moment—it's an extraordinary market opportunity, and we are poised to capitalize on it." Driving performance Looking at the factors that could drive performance in 2024, Global REIT earnings are forecasted to rise by over 10% cumulatively this year and next when increases to property taxes, to payroll costs, and to interest expenses are factored in.  Annual contractual rent increases, affirmative re-leasing spreads at expiration, and decreased vacancies are also expected to play a role. Additionally, the outlook anticipates a two year decline in real estate supply due to the higher cost of construction and financing for projects over the past 12 months. Meanwhile, demand remains high for residential and commercial real estate. This supply-demand dynamic should drive up REIT values in key regions and property types. "Despite a rally at the ending of 2023, REITs remain cheap," said Samuel Sahn, Managing Partner & Portfolio Manager, Public Real Estate Investments. "Over the coming year, we believe REITs that can deliver attractive earnings growth, retain pricing power in a slowing economic climate, grow margins, and trade at an appealing valuation with a higher-than-average expected return will outperform." #REITs #set #outperform #Hazelview #Investmentshttps://lnkd.in/dMbzTxmN