{"id":1004360456,"date":"2019-10-16T08:47:27","date_gmt":"2019-10-16T16:47:27","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004360456"},"modified":"2019-10-16T12:04:25","modified_gmt":"2019-10-16T20:04:25","slug":"5-forces-directing-cre-capital-flows","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/5-forces-directing-cre-capital-flows\/","title":{"rendered":"5 Forces Directing CRE Capital Flows"},"content":{"rendered":"
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Conference keynoter Margaret Chinwe Anadu, Partner & Head of the Urban Investment Group at Goldman Sachs, and capital markets session moderator Darcy Stacom, Chairman & Head of New York City Capital Markets, CBRE, Photo courtesy of NYU. <\/em><\/p><\/div>\n

These are interesting times for the real estate capital markets. Despite the growing wall of money dedicated to property investments and the decreased cost of borrowing, transactions have slowed down. A panel of experts at the New York University Schack Institute’s annual Women in Real Estate Symposium discussed the key factors controlling investors\u2019 purse strings.<\/p>\n

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READ ALSO: 5 Hot Topics from NYU\u2019s Women in Real Estate Conference<\/a><\/p>\n

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\u201cPeople are looking for, of course, good risk-adjusted returns today,\u201d<\/em> said the veteran executive Wendy Silverstein, who served most recently as chief investment officer at WeWork. \u201cIt\u2019s nothing really remarkable. What\u2019s remarkable is if you can still find them and not be kidding yourself about what is really going on in the world.\u201d<\/em><\/p>\n

1. Interest Rates<\/h2>\n

In light of uncertainty in the economy and the real estate cycle, Silverstein observed, wise investors are spreading their bets rather than focusing on a single asset class or location. They are also taking advantage of low short-term interest rates to increase leverage at reasonable rates, rather than betting on cap rate compression.<\/p>\n

\u201c(Levering up) is the way to play the low interest-rate game as it exists today,\u201d<\/em> said Silverstein. \u201cBut to start to buy assets late in the cycle at a high price and kid yourself on the exit cap rate is, as I said, a slippery slope.\u201d<\/em><\/p>\n

Meanwhile, it may be wishful thinking on the part of investors that interest rates will continue to fall. \u201cThe Fed came out saying most people from the investment community have a more…call it bullish view that the interest rates will drop than they will probably actually do,\u201d<\/em> said Anjum Sharma, head of Northeast acquisitions and dispositions for Brookfield.<\/p>\n

2. The Bottom-Up Approach<\/h2>\n

There are still positive macroeconomic trends in the market today, including job growth and wage growth. But investors also need to watch micro-economic trends, particularly on the building level, said Sharma. At Brookfield, her team takes what she refers to as a \u201cbottom-up approach,\u201d even in in strong markets like New York City and Boston. By focusing on properties where there is a high probability of tenant renewals and tenant \u201cstickiness,\u201d<\/em> Brookfield avoids incurring frequent tenant improvement costs and lost rent during the marketing period.<\/p>\n

\u201cThese are real drivers to what is going to happen to your bottom line, and real estate is such a cash flow-driven analysis that you have to be focused on that,\u201d said <\/em>Sharma.<\/p>\n

3. Relative Returns<\/strong><\/h2>\n

While investors have continued to increase their allocations to real estate, many are underinvested today as buying has slowed and competition for assets has intensified. “So the denominator is growing and the numerator is stagnant,”<\/em> said Karen Horstmann, head of Equity Acquisitions at Real Alliance Real Estate of America, which invests on behalf of German insurance companies. (The firm recently bought a 49 percent stake in 26 floors at 30 Hudson Yards<\/a> for $384 million.)<\/p>\n

\u201cWhat that\u2019s doing is shifting the focus more toward relative returns while the historic focus has been on nominal returns,\u201d<\/em> she said.<\/p>\n

Investors are also focusing on net returns vs. NOI yield. \u201cYou can\u2019t spend NOI,\u201d<\/em> she said. \u201cYou can spend cash. You really have to be focused on efficient buildings, long lease terms, tenant retention.\u201d<\/em><\/p>\n

4. The Reinvention of Real Estate<\/b><\/h2>\n

Investors are also driven by the reinvention of real estate, including the shift of retail to experiential users, the transformation of multifamily properties into amenity-rich communities, the emergence of flex office space and the tremendous influence of e-commerce on industrial. \u201cThe game is really about finding how to stay ahead of the curve\u2014where are the trends going, and how can you be on the leading edge of that,”<\/em> said Horstmann. “And that\u2019s where you can find pockets of growth.”<\/em><\/p>\n

The market’s definition of a strong tenant is also shifting, according to Horstman. A lot of capital has moved to the West Coast and to buying properties that are, in some cases, leased to single tenants in the media and tech industry that are not yet profitable. But that’s where those expanding industries are today.<\/p>\n

“You have to pay attention,” said Horstmann. “It’s a growth area of the economy. Some of the financial (tenants) have not been as strong in terms of growth in terms of what space they need, and tech, life science…Part of your portfolio should have exposure.”<\/em><\/p>\n

5. Placemaking<\/strong><\/h2>\n

Increasingly, investors are buying properties that will allow them to control their environment and provide tenants with an ecosystem.  \u201cThe sum of the parts is greater than any individual assets,”<\/em> said Horstmann, who while at Norges Bank oversaw its investment in Manhattan’s 12-building Hudson Square development. “You can really control the whole environment.”<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Investors are driven in part by the reinvention of real estate, said Allianz’ Karen Horstmann at the New York University Schack Institute’s annual Women in Real Estate Symposium.<\/p>\n","protected":false},"author":756,"featured_media":1004360840,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21825,21783,23891,21742],"tags":[36612,33497,35046],"class_list":["post-1004360456","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","category-investment","category-national","category-latest","tag-allianz-real-estate","tag-brookfield-properties","tag-cbre-capital-markets"],"acf":[],"yoast_head":"\n5 Forces Directing CRE Capital Flows - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/5-forces-directing-cre-capital-flows\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"5 Forces Directing CRE Capital Flows\" \/>\n<meta property=\"og:description\" content=\"Investors are driven in part by the reinvention of real estate, said Allianz' Karen Horstmann at the New York University Schack Institute's annual Women in Real Estate Symposium.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/5-forces-directing-cre-capital-flows\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2019-10-16T16:47:27+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2019-10-16T20:04:25+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2019\/10\/Pile-of-money.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"960\" \/>\n\t<meta property=\"og:image:height\" content=\"678\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Therese Fitzgerald\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/5-forces-directing-cre-capital-flows\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/5-forces-directing-cre-capital-flows\/\",\"name\":\"5 Forces Directing CRE Capital Flows - 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