'Look For The Dislocation', Says One CRE Exec
Despite dislocation in the capital markets, opportunity abounds for investors in the current economy.
Opportunities abound in commercial real estate despite a challenging interest rate and financing environment, according to one CEO — but “you have to look for the dislocation.”
“The last three months, we’ve seen a significant pullback in liquidity — but that also creates opportunity,” Scott Rechler, CEO and chairman of RXR Realty, told CNBC’s ‘Squawk on the Street’ this week, noting that during COVID, RXR bought $2 billion worth of multifamily product in New York City at a time when people were fleeing the region.
“You look for dislocation,” he said. ”Today we’re lending to people who are buying high quality multifamily buildings but just can’t get the financing they normally would get. It’s the same in terms of investing in office buildings to bring them up to the positioning where they can compete….There are going to be opportunities, but you have to be strategic and focused on what will be competitive in the post COVID world.”
Rechler, who is also a director of the New York Fed, says the growth potential after this economic cycle could surpass post-World War II.
“We have to get this underbrush cleared but once it’s cleared we’ll have a stronger foundation in the long term,” he told CNBC. He notes that the Fed has made clear they’ll do what’s necessary to slow the economy and fight inflation, and acknowledges a clear lag between interest rates rising and the impact on the economy.
“It’s going to be a choppy 12 to 18 months as we go through the process and live through the demand disruption and resetting ourselves, but on the other side of that I see a very strong economy coming out of the pandemic,” he said.
With that said, Rechler says investors have to stay focused and thematic, looking toward properties and product types will demand drivers to fare well during this cycle. For office, that’s limited to trophy Class A buildings in good locations. Multifamily remains a solid choice thanks to high demand and the state of the for-sale housing market, which is putting more Americans in rentals.