The Changing Dynamics of CRE Capital Markets
At GlobeSt.com’s Multifamily Fall Conference, Cushman & Wakefield's Marc Renard leads a discussion on current investment strategies.
LOS ANGELES—Marc Renard, Executive Vice Chair, Capital Markets Group for Cushman & Wakefield, recently led a diverse panel of industry leaders in a discussion about factors influencing the investment strategies. The conversation delved into the myriad factors shaping the investment strategies of major institutional players in today’s dynamic market. Renard’s opening remarks emphasized the unprecedented variables at play, from geopolitical risks and the remote work impact to a wave of loan maturities and rising interest rates, offering both challenges and generational investment opportunities.
When asked to encapsulate the current investment sales capital market state, Robin Potts, Partner and Chief Investment Officer of Canyon Partners Real Estate LLC, and Hailey Ghalib, Executive Managing Director and Head of Housing Investment and Development at Affinius Capital, resoundingly concurred: “Frozen.”
Panelist Stanley Iezman, Chairman and CEO of American Realty Advisors, echoed this sentiment, noting that for the past 13 or 14 years, the world has been in a low-interest-rate environment. He pointed out a critical shift, saying, “For the first time, we are seeing that there are other things besides real estate… Alternatives exist, and that is changing the dynamics.”
Ghalib stressed the importance of a balanced portfolio for institutional investors. She explained, “There is a place for real assets as a hedge against inflation, but putting all eggs in one basket is never a good idea.” She emphasized the vulnerability of long-term risk-free treasuries to interest rate risks.
Potts’ primary concern in the market is the frozen state of debt capital markets, which, when stagnant, impedes the functioning of the real estate sector. She noted, “The math just doesn’t work. It is why you are seeing a lot of equity players migrate up the capital stack. Debt is more attractive than equity from a downside risk perspective. Transaction activity is at a third of what it was previously.”
Iezman succinctly summarized the current climate with two words: “Capitulation on the seller’s side and certainty and predictability on the debt market.”
Regarding investment strategies today, Potts detailed how Canyon Partners invests across all asset classes and maintains both debt and equity platforms. She highlighted the importance of evaluating how long to hold an asset and calculating the associated costs. Fundamentally, this hinges on the balance sheet of the fund the asset resides in.
Iezman emphasized the management of balance sheets and the critical aspect of addressing redemptions and capital needs as debt maturities loom. “The decision to liquidate a property in a marketplace where you don’t have visibility on pricing has an impact on overall returns. We are all managing benchmarks, and our concern is that you don’t want to be under the benchmark by too much. It is a balancing act that we as investors have to manage,” he added.
Ghalib also offered insight into the role of debt maturities, acknowledging that we are in a world where debt serves as the governor. “Big picture, we aren’t seeing stress for the most part on the operating level. Fundamentals are healthy. We are seeing situational instances driven by financial distress. It is great to be in multifamily. At least the agencies are there.”
Check back with GlobeSt.com for more from the GlobeSt. Multifamily Fall Conference and click below for other stories you might have missed on the subject from the event.
Rising Interest Rates, Economic Uncertainty Fuel Single-Family Opportunities
Multifamily Leaders Unpack Challenges Amidst 70% Drop in Deal Volume
Reshaping Multifamily Management: Post-Pandemic Trends and Challenges
How Adaptable Multifamily Owners Thrive
Industry Titans Talk Insights, Challenges, and Multifamily Optimism