Winter Forum Analysis and Investing

We have a maturing loans problem. With 300bn this year and $375bn maturing in 2024, the problem are the properties that will not cover the debt service at our current interest rate environment. These are huge risks in the the market.

Currently, hospitality real estate is doing great. During the pandamic, hotels were hurting, which is why they did not trade at a ridiculous low cap. Now, their income is good and they are actually quite stable.  Sponsors are struggling to find acquisitions since Simon Goldstein from Buckingham Advisors is actively looking at deals but still very difficult to find the right deals. Who are the sellers today? In reality, the sellers are people who have to sell. The sales out there are between very very long-term owners and distress or semi distress.

The cost of capital for JV Equity went up by 200bps, and Real Estate Product is trading now way below replacement cost. That is putting a huge pressure on developers. Why build if you can buy cheaper, already built.

Funds Notes:

Bora Ozturk raised 3 funds, and he is with March Capital Management. Matt Posthuma from Ropes and Gray is servicing funds and is providing support to the fund managers. When launching a real estate fund, a manager will need to have a good story and a program that he wants to execute.

Retail is back. As usual, it’s location driven. Retail assets are doing OK now, mainly since the caps did not go too low during covid. Assets valuation also did not go through the roof because of covid. The sharpshooter approach is the right way to find assets because the need is to really understand the underlying fundamentals to underwrite well and find value.

Homelessness continues to be a huge issue in California. Leaders at IMN believe the solution is a cross agency solution. That is, the state has to combine a few agencies to work together and deliver a few different solutions.