For those staying in CRE, where do you see opportunity?
There have been a plethora of discussions recently on here about leaving the industry, how bad the job market is, how nothing pencils, etc. I've partaken in these and have honestly questioned doing something else, too. This market sucks and sitting on your hands has grown old. But let's assume we've done the soul searching and decided this is the industry for us. Where are you seeing opportunities to do deals that make sense? Any asset classes or strategies that are currently working or have a path to success over the next 24 months or so?
This thread says Corporate Real Estate/Occupier Services, Affordable Housing, Healthcare/Medical Office: https://www.wallstreetoasis.com/forum/real-estate/future-of-real-estate
I think you can also get wins targeting smaller projects that haven't been corporatized yet, whether that's smaller retail, smaller multi, etc. Risky in their own way though.
Rescue capital. Pref/mezz/bridge. When people need to transact but deals don’t pencil that opportunistic capital becomes high demand
No particular asset class is really cooking right now obviously so a shop that can be agile and invest across multiple asset classes and in the middle of the cap stack is probably best positioned for success right now. But even that success isn’t robust
So much easier said than done...Nobody wants to admit they are screwed on the debt/equity which is step 1 of this. A large swath of CRE is 20-50% overvalued from purchase price where the equity has to be wiped out and a decent portion of debt to boot. All of this is predicated on everyone saying uncle.
Agreed. I think a lot of CRE is being sold for far below what funds are marking the assets at internally. Once they are forced to sell these assets, the bubble shall finally burst.
Such bollox. Best opportunity is the riskiest form of investment in a market where “no deals stack right now?”
Senior housing
Office
RE secondaries are trading at 70 cents on the dollar, while secondaries for buyouts and private credit are around 90-92 cents on the dollar. Can argue and say there is structural headwinds within RE, hence the steeper discount, but I'd say the discount stems more from liquidity needs from GP's/LP's. I imagine this space will keep growing and will be a strong vintage looking back.
Things people don’t like - office and older multi
Yeah people don’t like those for a reason
They are terrible assets to own long term and core capital is not coming back to either anytime soon
Unless AI wipes out the white collar workforce I would bet you’re wrong.
People love office these days.
And they fear older multi for good reason. Most people in CRE are good financier but shit operators. And buying older bricks requires being a top flight operator. Capex absolutely eats any chance at a decent return.
Retail - especially open air shopping centers is performing the best it has in over 20 years. Generally speaking, outside of COVID, has had less volatility than other asset classes. Unanchored strip is also seeing some day light. Been so little development over the last 20 years, supply is limited and retailers are telling the street they need to grow X stores per year - some good mark to market opportunities if you can find the right deal.
Tertiary malls will continue to struggle and development is still challenging no doubt but overall outlook is positive.
I’m in retail and we are very busy.
I like industrial as supply wave is subsiding
Personally I think retail is undervalued. The future will quickly transform these assets and I don’t believe they are priced accurately, especially malls and power centers.
I agree with retail
I like infill re-use, in some of the growing cities that are not NYC/Chicago/Dallas/SF/LA etc. cities like Tampa or Charlotte or Orlando have huge stock of class B/C flex/Warehouse/Office in prime locations near downtowns and nice neighborhoods, where you could never get a replacement approved because the neighborhoods have turned residential or mixed use.
I think taking a 2-5ac rundown warehouse or flex space and converting to some mix of retail / townhome could be a smart play. At least in my city, the pricing for infill townhomes is beginning to encroach on a point where that product can compete for some sites, and when they actually get built they sell like hotcakes.
There’s a site near by house off a main road where the developer is doing a small but nice retail strip on the main road with an upscale townhome community behind it, and I think that will end up being a great project (at least financially).
At least for me, I boomeranged from CRE Dev (Asset Management) to a PE/PC fund, back to Dev (but this time on the land side of resi development), although that was more comp/life driven than thesis driven.
Selling to REITs as a sponsor.
In general I see affordable housing as an exciting field to be in. For the first time since I started my career almost a decade ago it seems like there is strong bipartisan support for directing resources here. Most Americans agree that housing costs are an existential crisis and that's true from your maga uncle to hipster creative field grads that I went to college with. It's kind of surreal. Not that NIMBYs went anywhere, and plenty of people have proposed terrible policy solutions, but I think that the outlooks is overall seeming more and more optimistic right now. I'm excited to see what happens in the next few years. Expanding LIHTC credits is one thing, and it seems like zoning reform is gaining steam around the country. Here in NYC where I work there are a lot of proposed legislative changes like ELURP that could in theory remove some barriers to getting new projects built. Since deep knowledge of these regulations and industry / agency relationships are a real moat for this kind of shop I think that people who already have worked on these deals will have a lot of great opportunities. Maybe this is me being an optimist and talking my own book (I don't own anything now but have worked on several pretty legit affordable / LIHTC projects and hope to go out on my own sometime in the next few years). I am pretty excited with the macro trends we are seeing in the discourse around the issue. As technology like modular construction and machine learning assisted planning comes to market in the next few years this will only help the process get faster. I hope to see more innovative mega-projects soon as the demand and political will is clearly there.
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