April 28, 2024
Investors are facing tougher portfolio management decisions as US public markets trade at rich valuations.1 Re-examining market drivers for dislocations between perceived and actual risks could be a benefit. We believe the current commercial real estate (CRE) market is misunderstood by investors, as the secular shift negatively impacting the office sector is not the same headwind other major property types might face. Attributes to consider for hotel, industrial, multifamily and retail include:
Fundamentals remain generally supportive outside of office;
Lenders have been lowering leverage and tightening covenants on new deals;
Dislocation in the banking sector has caused banks – historically the largest of the four primary providers of CRE debt – to reduce their allocations.
Together, these attributes make it a more attractive entry point into CRE debt. We believe the middle market within Core Plus Real Estate Debt offers the most compelling opportunity today, but will require broker/borrower relationships and a repeatable, fundamental investment process.
KEY TAKEAWAYS
Investors are facing tougher portfolio management decisions as US public markets trade at rich valuations; re-examining market drivers for dislocations between perceived and actual risks could be a benefit
We believe the current CRE market is misunderstood by investors, as the secular shift negatively impacting the office sector is not the same headwind other major property types might face
Fundamentals remain generally supportive outside of office; lenders have been lowering leverage and tightening covenants on new deals, making it a more attractive entry point to CRE debt
Dislocation in the banking sector has caused banks – historically the largest of the four primary providers of CRE debt – to reduce their CRE allocations
We believe the middle market within Core Plus Real Estate Debt offers the most compelling opportunity today, but will require broker/borrower relationships and a repeatable, fundamental investment process
(1) As of 25 April 2024. (2) Bloomberg. Year-over-year changes of the RCA CPPI Indices. Monthly data through 31 March 2024.
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Past performance is no guarantee of future results. Investments involve varying degrees of risk and may lose value.
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