At the 18th Real Estate Private Equity Summit, hosted by iGlobal Forum, there appeared to be a sense that this real estate cycle may be ending—if not soon, then in the somewhat near future. Still, there is a lot of private money out there looking for investment opportunities, and many panelists detailed where they think those opportunities might be at this stage. Here are some highlights from the event, which was held at The Harmonie Club in New York City.
- “We’re in a low-return world,” said Michael Fascitelli, the founder of MDF Capital LLC and co-founder and managing partner of Imperial Companies, kicking off the summit with a sentiment that was echoed throughout the event. The public REIT market has been suffering, and there has also been a bit of withdrawing of international capital, he noted. Nevertheless, the shifting dynamics in some areas of commercial real estate—such as the disruptions in the retail and office sectors, for example—can provide opportunities for outsized returns, although the risks may also be great, Fascitelli said.
- “Demographics are destiny,” and can impact the real estate opportunities in the U.S., according to Robert Morse, chairman of Bridge Investment Group, a real estate investment and property management firm that focuses on multifamily, office, affordable housing and seniors housing properties. Demographics, for example, will continue to drive demand for seniors housing, particularly as the 75 and older cohort is the fastest-growing age class in the country. “We see that as a significant long-term trend,” Morse said, noting that supply and demand trends in some markets needs to be watched. This is similar for the multifamily sector, where there is a lot of competition to buy assets given that there is strong household formation and job growth triggering gains in rents and occupancy, Morse added. There are differences between class-A properties, which have seen declining occupancies as a result of the influx of new supply, and class-B and -C properties that continue to see robust occupancy and rent gains. “We think it’s a fertile ground in which to continue to invest,” Morse said.
- “The cycle is ending,” said Peter Ciganik, managing director of GTIS Partners LP, a real estate investment firm with properties in the U.S. and Brazil. However, he noted that this time around, the real estate industry will not be the culprit for the next downturn. In fact, real estate may be a good place to park capital to weather out the storm. “I think people should be prepared [for] getting through this cycle,” he added. Ciganik noted that single-family residential housing is one sector that he believes will continue to grow because there is not enough supply to meet demand. This is also demographically driven, he said, as the millennial generation is starting to age and look to move to the suburbs as they settle down with families.
- The U.S. is still appealing to global investors—particularly following the adoption of tax reform legislation,—but foreign investors are not just focusing on gateway cities, Morse said. They have now broadened their interest to secondary markets, where sometimes the economic fundamentals, particularly in terms of net in-migration and job creation, are better than those of some gateway cities, he noted. “Whereas, to take an example, a Danish pension fund may have been interested in six or seven cities in the U.S. in the past, they’re actively in dialogue about secondary cities,” Morse said.
- The commercial real estate industry is just starting to broach a new era of data and technology, said David Dent, a senior real estate market analyst at Yardi Matrix, a research firm. “It’s very likely that within the next five to seven years, you’ll pull out your phone and point it at a building and it will come up with a whole dashboard—the cap rate, the last trade, who owns it,” he said, noting that there are a lot of data and tech programs out there, but they are not very user-friendly or pervasive. There many new tech companies in the space raising money, but few have seen big success, because some of these opportunities are small, Dent said. “There are hundreds of new entrants, there are probably only a dozen or so that are going to make it,” he added.