BlackRock Says to Invest In These Three Asset Types

The investors are coming. Not in red coats, but swathed in capital. GlobeSt.com has heard from many in the last 12 to 18 months about the dry powder waiting for opportunities to invest. As things gear up, the market’s bottom is coming into view.

While many argue about how much trouble commercial real estate is facing, increasingly, the market makers and facilitators have been pointing out that even in tougher property types like office, there can be hope.

BlackRock’s 2024 Private Markets Outlook says that the “window of opportunity is opening up for real estate investors.” Yes, valuations are falling. Yes, rents on all kinds of properties aren’t growing the way they were. Office is in pain. Even a one-time darling of the pandemic CRE set, multifamily, has seen six months of falling rent rates.

According to BlackRock, the market disruptions have created a “dislocated environment” that enables the purchase of “high-quality assets at attractive prices, and often below replacement cost.” But while “this environment of repricing amid steady market fundamentals represents a great opportunity,” there are challenges.

Transactions are down tremendously, probably because of the cost of financing, BlackRock says, and “restrictive financing” is likely to continue. That means opportunity for non-bank lenders like insurance companies and debt funds.

Investors need to carefully consider asset types, which will be key, BlackRock says. “And investors looking to deploy dry powder should consider higher-quality properties, which have tended to outperform during the early stages of past real estate market recoveries,” they write. A combination of cash-flow durability and rent pricing power will be critical.

That makes the best choice of asset types of the subtler than might seem obvious at first. They mention “excess supply in some high-growth apartment markets in the U.S., putting fundamentals in these areas in question.” There was a record number of newly built unit hitting the market last year and even more expected in 2024. The focus has been in some of the highest demand areas, for obvious reasons. But as multiple developers have told GlobeSt.com over time, there has been some bias toward upper-end developments because of increased construction costs and high financing rates. To make deals work, the focus went to properties that could command higher rent rates. The potential result has become over concentration on those submarkets, and competition undermines the necessary financial dynamics.

Instead, there are three specific property type and market combinations to consider, the report says: “apartments in key suburban locations, necessity retail close to metropolitan areas, [and] logistics hubs near major cities.” The residential part offers good opportunities for growth, necessity retail has attractive entry points and low supply, and logistics continue to be attractive given ongoing expansion of e-commerce and diversified supply chains, including nearshoring and reshoring of manufacturing.