Friedman Integrated Real Estate Solutions’ David Friedman, Jared Friedman and Scott Shefman recently attended the annual Commercial Real Estate Finance Council Conference in Miami, Florida. While much of the talk at the conference centered around the new risk retention rules requiring CMBS issuers to retain interests in transactions that they originate, several additional themes emerged from conversations with various conference participants:
Equity Remains Plentiful
In speaking with representatives from various private equity funds, hedge funds, pension funds and private investment concerns, it is clear that significant amounts of capital remain available for investment in US commercial real estate. At the conference, we spoke with several groups that have at least $1 billion of capital ready for deployment.
Value Add Is the Prevailing Mantra
As returns on core assets and stabilized properties of all kinds have declined to historically low levels, investment professionals from all sectors are now focusing on “value-add” deals where returns can be enhanced through some combination of renovation, repurposing or lease-up. Firms that have traditionally focused on only 1st tier markets tell us that they are now expanding their geographic parameters to include both 2nd and 3rd tier markets in an effort to find deals that meet these criteria.
Multifamily, Industrial and CBD Office Are Preferred Sectors
A number of investors that we spoke with indicated that they are concentrating their acquisition efforts on multifamily, industrial and CBD office. Conversely, they are tending to shy away from lodging, retail and suburban office. Contrarian investors, who tend to invest where others won’t, are the lone buyers for these product types.
Non-Bank Lending On the Rise
Debt funds, REITs and other private lending platforms are exempt from many of the regulations that have been imposed upon traditional bank lenders in recent years and they’ve used this advantage to fill the gap created by the decline in traditional bank lending. While their cost of capital is often more expensive than that of the banks, private lenders can be nimbler and more aggressive than their banking brethren and they’re expected to capture even greater market share in 2017 as a result.