In the first two months of 2023 we have talked to a number of commercial real estate investment experts to get their takes on how they are responding to these conditions. They talked about how they are altering their approaches, what’s happening in different property sectors and what they expect to take place for the balance of the year.
Some of the topics covered including multifamily investment, seniors housing, the prospects for distressed investment, the state of the REIT market and tax considerations for high-net-worth investors.
1. Why One Firm is Betting on Core and Build-to-Core Real Estate Investments
Dallas-based Crow Holdings, a national real estate development firm, has built successful partnerships with both investors and locally-based real estate development teams. The firm’s investment management arm Crow Holdings Capital (CHC), in partnership with institutional investors, provides access to capital for projects by Crow Holdings. Focused primarily on multifamily, industrial and office development, the CHC’s build-to-core and core investment strategies aim to provide investors opportunities for long-term income and capital appreciation.
Coe Juracek, senior managing director of the Investor Coverage Group for CHC, discusses his firm’s investment strategies and development focus.
2. How One Big Apartment Investor is Putting its Capital to Work
While other potential buyers argued with sellers about the prices of apartment properties, Harbor Group International (HGI) put billions to work for its investors. HGI invested $2.7 billion to buy apartment properties in 2022. Rising interest rates barely slowed them down.
The real estate investment firm, headquartered in Norfolk, Va., is finding property owners motivated to sell, even if they have to accept higher cap rates to adjust for higher interest rates. HGI also uses strong lender relationships to find relatively low interest rates, sometimes by assuming existing loans on apartment properties.
“We’re in the market buying,” says Yisroel Berg, HGI’s chief investment officer for multifamily. “We believe they’re there will continue to be opportunities.”
We asked Berg how HGI is finding attractive opportunities when so many other firms are unable to close deals. Edna Chen, senior vice president of investor also shared how HGI’s investors are changing.
3. PGIM Shifts to Open-Ended Fund Model for Seniors Housing Investments
PGIM Real Estate is looking ahead. The real estate asset management arm of American life insurance company Prudential Financial, has now invested three quarters (74 percent) of the $996 million it raised for its last closed-end fund dedicated to seniors housing.
“The time has really come for a senior housing strategy that has a more perpetual structure,” says Steve Blazejewski, managing director and senior portfolio manager for the senior housing strategies at PGIM Real Estate, working in the firm’s Atlanta offices.
WMRE asked Blazejewski what an open-ended strategy dedicated to seniors housing could mean for investors and operators of seniors housing. And why hasn’t it happened before?
4. How One CRE Fund Manager Is Adapting to a New Cycle Phase
Prior to the pandemic, ElmTree Funds LLC, a real estate fund manager based in Missouri , invested in three high-growth real sectors of commercial real estate—industrial, office and healthcare facilities. Those investment strategies were driven by trends such as the growth in online shopping and the proliferation of small, convenient medical treatment centers, as well as the physical office culture that existed before the arrival of COVID.
With post-pandemic uncertainty around the future of office buildings , ElmTree has had to reshuffle its sector allocations. About 90 to 95 percent of the firm’s investments are now focused on new single-tenant, build-to-suit, net lease industrial assets occupied by investment-grade companies, such as Amazon, Target, Caterpillar, FedEx and GE. The remaining 5 to 10 percent of ElmTree Funds’ investments are focused on newly constructed office buildings.
Another change that’s impacting ElmTree’s current strategies is the pull back on access to real estate debt, with cash buyers now being among the most active players in a marketplace where cap rates are rising and values are falling. In a recent conversation with WMRE, ElmTree Partner Annie Hsieh, the firm’s investor relations lead, discusses how and why investors like ElmTree are benefiting from this unique marketplace opportunity for cash buyers.
5. 2023 Unlikely to Bring a Large Wave of CRE Distress, Predicts Walker & Dunlop Exec
Commercial real estate investment sales have already been trending down for some time, with higher interest rates creating uncertainty about the future direction of property values. In the fourth quarter of 2022, overall investment sales volume in the U.S. plunged 62 percent compared to the year before, to $138.9 billion, according to research firm MSCI Real Assets.
But the potential for recession in 2023 is creating further unease for many real estate investors , while still opening up new opportunities for some of them.
To figure out which investors are likely to benefit or to face challenges in the short- to medium term, WMRE recently spoke with Marcus Duley, chief investment officer at Walker & Dunlop Investment Partners, a commercial real estate investment firm headquartered in Denver that has $3.4 billion of assets under management and advisory split between debt and equity. Below are Duley’s thoughts about the current state of the commercial real estate investment market and the most attractive of today’s opportunities.
6. Publicly-Traded REITs Enjoy a Fast Start to What They Hope Will Be a Bounce Back Year
After suffering a rough 2022, with total returns on the FTSE All Equity REIT Index down nearly 25 percent, publicly-traded REITs are poised for a bounce back in 2023 and things got off to a strong start with total returns rising 10.07 percent in January.
Most property types posted double-digit gains for the month, led by lodging/resorts (up 17.13 percent), industrial (up 13.71 percent) and data centers (up 13.21 percent). Even the much-maligned office sector saw total returns up 11.35 percent in January.
WMRE spoke with Edward F. Pierzak, Nareit senior vice president of research, and John Worth, Nareit, executive vice president for research and investor outreach, to discuss the results from the first month of 2023.
7. Tax Advantages Are a Selling Point for Investment in CRE. How Should HNW Investors Think About Them?
For high-net-worth (HNW) investors and family offices, one of the attractions of investments in commercial real estate is often the tax advantages such investments offer. To that end, in December, FTI Consulting announced that Michael Osherovitz has joined the global business advisory firm as a managing director and head of the private client tax group within the company’s real estate solutions practice. He is based in New York.
With some 20 years of experience in tax planning and compliance, Osherovitz joined the global business advisory firm from Oak Hill Advisors, LP, where he was head of family office. He spoke with WMRE about his new role, how HNW individuals and families can make the most out of generational wealth, and what tax challenges to keep an eye on during this point in the cycle.
8. How One Actor-Turned-Investor Built a Real Estate Syndication Biz
In growing Sun Belt markets, investors are still looking for apartment properties to add value to.
“Even though things right now in the market are a little bit volatile I’m still looking. There’s still opportunity,” says Matt Picheny, founder of a New York City-based real estate syndicate currently adding value to roughly 4,000 apartments located in Texas, Kansas and Missouri.
Picheny is a former actor turned syndicator.
By improving the properties, he plans to double the money his syndicate invests in each property within five to seven years—though many of his properties have achieved that goal in half the time. He achieves these yields without displacing residents and keeping rents relatively affordable.
Source: “Eight Perspectives on Current Real Estate Investment Trends”
