Thought Leadership

In spite of fears of a slowdown, apartment rentals will continue to see outsized demand for a long time. Apartments have been the darling of real estate capital markets for the past seven-eight years. This deep into an outstanding run, some investors have begun to worry if the clock is approaching midnight for Cinderella.

In spite of fears of a slowdown, apartment rentals will continue to see outsized demand for a long time. Apartments have been the darling of real estate capital markets for the past seven-eight years. This deep into an outstanding run, some investors have begun to worry if the clock is approaching midnight for Cinderella.

Non-billionaire HNW investors are increasingly competing on large-scale commercial assets. Not so long ago, the vision of high-net-worth (HNW) investors in commercial properties entailed doctors and lawyers passing the hat at the country club in an effort to buy an eight-unit apartment complex in town or the retail strip across the street from church. In recent years, however, this image has been washed away in a veritable flood of HNW capital propelled by increased sophistication and growing incentives.

Late-cycle investing calls for close attention to all potential risk/reward scenarios. Markets develop their own momentum and when a feeding frenzy takes hold, undisciplined investors often throw caution to the wind. They want a piece of the action and fear being left in the dust. Even discerning investors can rationalize stretching on underwriting assumptions, figuring that if costs are slightly underestimated or income is overstated the rising tide will lift their boat, too.

After years of strong returns, can commercial real estate investors be satisfied with merely positive results?

Delving deeper into the geographical jargon of market tiers sheds light on investment trends and value-add opportunities that would have gone overlooked just a decade ago. The real estate industry is known for its shorthand captioning of complex topics, often assuming that industry participants share common background knowledge. Since this is not always the case, delving a little further into the geographical jargon of market tiers sheds light on investment trends and value-add opportunities that would have gone overlooked just a decade ago.

Prudence dictates that we prevent our industry from going backwards and losing the credibility that we have worked so hard to gain. Real estate development in the U.S. has historically been driven by entrepreneurs with great ambition and visions of grandeur, but thin pocketbooks. Lacking their own controlled or discretionary capital, these developers needed to sell their ideas to banks, pension funds and other investors. This reality dictated more leverage, as equity was expensive and diluted the entrepreneur’s take-home profit. This was never more evident than in the 1980s-1990s when the S&L industry often provided close to 100 percent loan capitalizations.

With concessions ticking up and rent growth slowing, is it time to question or finetune allocation levels and strategies in multifamily investing? The stability, durability and continued capital flows into multifamily investing permeate today’s headlines, with industry pundits believing apartments to be the most popular product type with real estate investors in 2018, second only to industrial. Mixed signals abound among varying markets, and it’s important to dissect and triangulate the real data as the analytics don’t always tell the full story.

We believe certain real estate investments will have enhanced after-tax yields in 2018. What better way to kick off the new year than to discuss the new tax law and the gift we all just received as real estate investors? The new tax legislation will impact investors and their investment strategies as we all continue to search for yield and source opportunities within the alternative investment landscape. As equities and bonds continue to demand outsized liquidity premiums we believe certain real estate investments will have enhanced after-tax yields in 2018.

Tracking the trend of increasing alternatives allocation is worth a longer look, as it is indicative of a shift by HNW investors and will result in increased capital flows into real estate. The rethinking of traditional investment allocations is causing high-net-worth (HNW) investors to seek ways to diversify their investment portfolios, especially given the current low yield environment. The increased allocation to alternative investments, such as private equity, hedge funds, commodities and real estate, is aiding HNW investors in achieving improved portfolio diversification, a hedge against future inflation and increased current yield, with certain tax benefits in the case of real estate.

What are the market cues that can help pick opportunities that will generate returns that align with portfolio goals? As high-net-worth (HNW) investors and family offices look to increase their portfolio allocations in real estate, the multifamily sector continues to offer attractive investment opportunities. HNW investors demanding predictable cash flows from core properties or value‑add yields on ground-up and redevelopment projects can meet these objectives in the multifamily sector. In this context, what are the market cues that can help pick opportunities that will generate returns that align with portfolio goals?