Unpacking the Institutional Landscape
“We need core-plus capital flowing in to allow us to rotate our portfolios."
“At the end of the day, we like to invest in long-term macro trends, and housing is one of them,” said Daniel Palmieri, Managing Director at KKR, during a panel discussion at the GlobeSt. Multifamily Fall Conference in Downtown Los Angeles. “The United States is under-housed,” he added.
Palmieri explained that their recent significant portfolio purchase was made at a discount to replacement cost in markets that were experiencing housing shortages.
Panelist Craig Cowie, Senior Managing Director of Investments at Affinius Capital, noted that current capital raises for institutions are primarily focused on value-add opportunities. “We need core-plus capital flowing in to allow us to rotate our portfolios,” he said.
Patrick Pelling, Head of U.S. Transactions at LaSalle Investment Management, highlighted the emerging catalyst for raising more core money. “We have two core funds, and in the last two quarters, both have remained flat, which is fantastic. We’re beginning to see inquiries from consultants and more client meetings. Stabilization of values will help bring it [core money] back,” he noted.
When asked if value-add has become the “new core,” Pelling observed that such opportunities have been dwindling over the past two to three months. “While they still exist, especially with over-leveraged entities, finding those assets is becoming increasingly challenging,” he explained.
Switching gears to development, Pelling emphasized the importance of partnering strategically and targeting the right markets for development. “Development may not be as prominent as it was three years ago, but it can help stimulate future growth. Raising more core money and making core pricing more competitive will be essential,” he said.
Regarding geographical strategies, Palmieri pointed out that the affordability case in markets like San Francisco remains compelling. “When considering potential rent growth, interesting bets can still be made there, unlike maybe in places like Austin and Phoenix, where supply remains abundant. I don’t believe the capital markets have fully aligned with the underlying fundamentals,” he stated.
“We are looking for areas we can achieve more rent growth, added Pelling. “That is where we are making our bets right now.”
Check out our previous coverage from the multifamily conference and come back for future stories.