{"id":1004701491,"date":"2024-02-07T16:22:45","date_gmt":"2024-02-08T00:22:45","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004701491"},"modified":"2024-03-01T06:20:35","modified_gmt":"2024-03-01T14:20:35","slug":"capital-ideas-did-the-fed-help-end-the-freeze","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/capital-ideas-did-the-fed-help-end-the-freeze\/","title":{"rendered":"Capital Ideas: How the Fed Is Helping Thaw the Freeze"},"content":{"rendered":"\n

<\/p>\n\n\n

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Therese Fitzgerald<\/figcaption><\/figure><\/div>\n\n\n

The day after Fed Chair Jerome Powell appeared on “60 Minutes” to repeat his message that Federal Open Market Committee members are not ready to lower interest rates, the Dow fell 300 points. In commercial real estate, however, confidence was boosted by the Fed\u2019s most recent announcement, particularly for those who may be waiting on the sidelines to invest.<\/p>\n\n\n\n

That\u2019s because, while Powell put off cutting rates<\/a> for a later date, he also allayed concerns about a recession, citing GDP growth, a strong labor market and significantly reduced inflation. And that will facilitate CRE deals to start flowing again, according to Heitman<\/strong>‘s Mary Ludgin.<\/p>\n\n\n\n

\u201cTransactions will thaw in 2024, even if the Fed waits until June, because sentiment is improving,\u201d Ludgin, senior advisor at Heitman and a member of the firm\u2019s global investment and global management committees, told me this week.<\/p>\n\n\n\n

On the other hand, if you are not<\/em> an all-cash buyer or common-equity joint venture partner, the Fed’s decision to hold the federal funds rate at its current 23-year high of 5.5 percent would have been disheartening. \u201cThe levered buyers are not going to be helped,\u201d Ludgin noted.<\/p>\n\n\n\n

As a global investment manager with more than $50 billion AUM, Heitman will certainly be acquiring assets this year, and Ludgin sees numerous \u201cinteresting\u201d opportunities to buy while remaining \u201cdefensive and selective.\u201d <\/p>\n\n\n

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READ ALSO:<\/strong> DLA Piper Analyzed How Deals Changed in 2023<\/a><\/p>\n

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Opportunity knocks<\/h2>\n\n\n\n

Apartments in oversupplied markets like Nashville, Tenn., and Phoenix, for example, will offer investors the chance to buy new assets at a discount to replacement cost, she said. Demand is still strong in these locations, but the markets cannot absorb the new product fast enough.<\/p>\n\n\n\n

Discounted buying opportunities will also flow from owners who are ready to \u201cput out a fire\u201d in one area of their portfolio, and from banks looking to shed REO assets. Last month, RXR<\/strong> and Ares<\/strong> announced a $1 billion fund to buy distressed Manhattan office space, and Ludgin expects that \u201cthere will be more such strategies that come forward.\u201d<\/p>\n\n\n\n

Ludgin also anticipates capital returning to major cities in 2024 as “cities are dead\u201d talk quiets, and residents return to urban areas. \u201cThere are interesting opportunities in many gateway cities that got a bad name during COVID-19,\u201d Ludgin observed. \u201cIt\u2019s time to look again.\u201d<\/p>\n\n\n\n

Meanwhile, there will be increased opportunities in the industrial market related to the \u201cdeglobalization\u201d of manufacturing and distribution by U.S., European and Asian companies\u2014a trend made more urgent when Houthi rebels recently attacked container vessels and dry bulk carriers crossing the Red Sea.<\/p>\n\n\n

\n
\"\u201cThere
\u201cThere are interesting opportunities in many gateway cities that got a bad name during COVID-19,\u201d observed Mary Ludgin, senior advisor to Heitman & a member of its global investment and global management committees. <\/figcaption><\/figure><\/div>\n\n\n

Heitman also sees buying opportunities in retail<\/a>\u2014particularly grocery-anchored open-air centers, and in office, though Ludgin referred to office as real estate’s “most out-of-favor” sector. <\/p>\n\n\n\n

“Out-of-favor sectors are always worth a look,” she commented. “We’re open for investments at a price that reflects the inherent risks in a sector where operations are being affected by tenant downsizings and where equity and debt capital are scarce.”<\/p>\n\n\n\n

Neither retail and office are “dead,” Ludgin added, but each is experiencing its own rightsizing process. <\/p>\n\n\n\n

Managing risk<\/h2>\n\n\n\n

Meanwhile, Heitman will continue to stress diversification on a number of levels as a hedge against risk. \u201cI\u2019ve been in the business 30-plus years, and it used to be just office and retail,\u201d Ludgin recalled. \u201cNow portfolios can have eight or 10 property types, including ones that are defensive in nature like MOB and self storage.\u201d<\/p>\n\n\n\n

Heitman\u2019s clients will also spread their investments across multiple platforms. In addition to buying properties, debt investment <\/a>will continue to be a \u201cfavored strategy\u201d in 2024 in light of banks\u2019 continued reluctance, and there will be opportunity in REITs which, she said, are \u201cunderpriced\u201d as a sector.<\/p>\n\n\n\n

In terms of geographic diversification, Heitman will advise U.S. clients to look abroad to increase exposure to different economic drivers while geopolitical turmoil in other parts of the world will bring increased foreign capital here. <\/p>\n\n\n\n

Investors will also need to hedge against climate change and worsening weather events, she said, which are \u201cstarting to flow into CRE pro formas\u201d due to the impacts on insurance costs as well as investor and tenant demand. “We saw it firsthand in our portfolios.” <\/p>\n\n\n\n

Therefore, investors heavily focused on the Southwest would do well to look north as well. \u201cThose investors need to look at the northern U.S. and Canada,\u201d she said. \u201cThey are best positioned against climate change, not completely, but enough to make a difference.” Northern locales may also be better positioned for the transition away from fossil fuels.<\/p>\n\n\n\n

In light of all her forward-looking optimism about investment, I wondered if Ludgin was concerned about CRE’s mounting loan maturity problem and the wide-ranging impacts it could have on the economy if the doomsayers are right. She told me she feels assured that a post-GFC U.S. banking system will withstand the situation but acknowledged that there will be some pain. “Where the pain is, is in the regional banks, and it will be a tough year for them,” she noted. <\/p>\n\n\n\n

During the “60 Minutes” interview, Powell concurred<\/a> that the Fed expects the fallout to be contained to smaller financial institutions, some of which will close or be “merged out of existence”: “We looked at the larger banks’ balance sheets, and it appears to be a manageable problem.” Let’s hope so!  <\/p>\n","protected":false},"excerpt":{"rendered":"

With transactions expected to flow again this year, I asked Heitman’s Mary Ludgin: Where will the best opportunities be?<\/p>\n","protected":false},"author":756,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21684],"tags":[33276],"class_list":["post-1004701491","post","type-post","status-publish","format-standard","hentry","category-viewpoint","tag-heitman"],"acf":[],"yoast_head":"\nCapital Ideas: How the Fed Is Helping Thaw the Freeze - 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\/capital-ideas-did-the-fed-help-end-the-freeze\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Capital Ideas: How the Fed Is Helping Thaw the Freeze\" \/>\n<meta property=\"og:description\" content=\"With transactions expected to flow again this year, I asked Heitman's Mary Ludgin: Where will the best opportunities be?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/capital-ideas-did-the-fed-help-end-the-freeze\/\" \/>\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=\"2024-02-08T00:22:45+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-03-01T14:20:35+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/07\/therese_fitzgerald-3.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"620\" \/>\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\/capital-ideas-did-the-fed-help-end-the-freeze\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/capital-ideas-did-the-fed-help-end-the-freeze\/\",\"name\":\"Capital Ideas: How the Fed Is Helping Thaw the Freeze - 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