Few industries are feeling the impact of higher interest rates more than real estate. The ups and downs of mortgage rates in the residential real estate market have grabbed their share of headlines, but the commercial real estate market has also been hit by higher rates in recent years. Add to this trends such as remote work and migration, and real estate investors face a host of challenges. To help make sense of current trends, there will be a presentation at the 2024 BizTimes Media Commercial Real Estate and Development Conference Billy Foxsenior vice president of the company in Brookfield MLG Capital. Fox will focus on the current state of the capital markets, particularly in the multifamily sector.
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Ahead of the event, Fox shared his thoughts with BizTimes:
BizTimes: What is the overall current state of the capital markets, especially since the Federal Reserve began cutting interest rates?
Fox: “Real estate is a highly debt-dependent and capital-intensive asset class. Higher interest rates and higher costs of capital have weakened investor demand and private property prices. “Many institutional investors are putting more money into fixed income—than equities or alternatives such as private real estate—to rebalance their portfolios after their fixed income yields have been squeezed by higher interest rates. Retail investor capital has shifted to high-yield savings accounts and personal loans to meet their cash flow needs, and their private real estate investments have declined. A recent RA Stanger report found that investments in non-traded REITs such as BREIT Blackstone and SREIT Starwood will total $6.3 billion in 2024, representing approximately 18% of their 2021 peak fundraising of $34.4 billion. And conversely, investment in BDCs such as private lenders Blackstone, Ares and Blue Owl has grown from $14.2 billion in 2021 to the current trend of $35.5 billion in 2024.”
Are there any distinct trends in the industrial, office, retail and multifamily markets?
“The office is being challenged. Office entered the pandemic weaker than other asset classes and suffered numerous major blows, including lower demand and shifts in demand for office space post-pandemic, less debt and equity available for investment, and higher tenant turnaround costs. Of course there are exceptions, but overall the asset class is suffering.” “Multifamily families are struggling from an operations and capital markets perspective. Operationally, this asset class is negatively impacted by the oversupply that is being supplied across the country, leading to increased vacancies and concessions; rising delinquencies as COVID-related cash left tenants’ bank accounts and inflationary pressures reduced discretionary income and savings; and landlords are struggling with increased costs (especially taxes and insurance).”
How do investors look at different geographies? Are markets like the Milwaukee metro and others in the Upper Midwest doing relatively well?
“Multifamily housing in the Midwest is receiving more attention than in past years. The oversupply that has led to rising vacancies and concessions is largely concentrated in Sun Belt markets. Likewise, tax and insurance increases tended to be greatest in Sun Belt markets. Thus, Midwest apartment buildings are superior to the Sun Belt in many ways. The Commercial Real Estate and Development Conference will also host a unique Developer Fantasy Camp, which will give three development teams the opportunity to imagine new uses for the former Northridge Mall in northwest Milwaukee. The teams include Scott Luriefounder F Street GroupWith Aria Kesetegeneral manager AK Development; Bob Monnatsenior partner of the company Mandel GroupWith Michael Adetoromanaging partner of the company Investment group FIT; And Scott YaukPresident and CEO of the company Cobalt PartnersWith Stephanie MercadoHead of Supplier Diversity at Michels Company
Commissioner of the Milwaukee Department of Urban Development Lafayette Crump will also take part in discussions with Andy HuntDirector of the Viet Institute for Real Estate Leadership at Marquette University College of Business Administration. The conference on commercial real estate and development was made possible thanks to sponsors Creating an advantage, CLA, Hush Blackwell And Johnson Financial Group; exhibition sponsors Innovation signs And JLA Architects; and event partners Marquette University Vietnam Institute for Real Estate Leadership And Wisconsin Commercial Association of Realtors.
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