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Investor Appetite for Retail Real Estate Is Heating Up Again
Institutional buyers are still approaching retail with caution, sticking to safe assets and largely avoiding enclosed malls. PHOTO: AARONP/BAUER-GRIFFIN/GC IMAGES/GETTY IMAGES

In a paradigm shift, major investment conglomerates, erstwhile disinterested in retail real estate, are now reevaluating the sector—a clear indicator of the resurgence of this historically troubled property domain.

Institutional acquirers are swiftly securing ownership of grocery emporiums, pharmaceutical outlets, and other recession-resistant establishments. The commendable performance of the retail sector in recent times has heightened its allure, particularly as the demand for office structures dwindles amid the prevalent trend of remote work.

Investor enthusiasm for commercial real estate is experiencing a resurgence. A recent JPMorgan report advises allocating a 25% stake in alternative investments. Propmodo delves into the advancements observed in Opportunity Zone investments over the preceding half-dozen years. Here are today’s indispensable reads from the realm of commercial real estate. Alternatives Deemed ‘Crucial’ for 2024: JPMorgan In its 28th annual Long-Term Capital Markets Assumptions report, JPMorgan offers extended prognostications for diverse asset classes while detailing potential risks and catalysts for growth. The report suggests introducing a 25% allocation to alternative investments, anticipating a 60 basis points annual surge in returns coupled with diminished volatility. (Nasdaq.com)

Private Equity Faces Regulatory Scrutiny in the U.S. The profound impact of private equity (PE) is particularly palpable in the United States. As of the end of 2022, private funds declared holding $20.4 trillion in gross assets, a substantial increase from about $8 trillion a decade prior, according to the US Securities and Exchange Commission (SEC). In the present landscape, PE transactions constitute over one-third of all M&A activity, with a predominant focus on the technology, healthcare, consumer, and financial services sectors. Despite a downturn in 2023 due to escalating interest rates, PE firms maintain an active presence in the U.S., capitalizing on favorable tax policies. (Worldwide Financier)

Rising Numbers of Accredited Investors The count of ‘accredited investors’ eligible for involvement in private securities offerings has surged 16-fold since the inception of the criteria four decades ago, reveals a recent review by the Securities and Exchange Commission. In 1983, 1.51 million households met the accredited investor standards. Fast forward to 2022, and the number has skyrocketed to 24.3 million households, a surge attributed mainly to the lack of adjustments for inflation in the thresholds for natural person accredited investors. (ThinkAdvisor.com)

Anticipated Trends in Real Assets for 2024 Real estate faced significant challenges in 2023, with asset valuations declining across various markets since the latter part of 2022. Transaction volumes continued to plummet throughout the year, as negotiations between potential buyers and sellers often reached an impasse on pricing. Investors are optimistic about 2024, hoping for a stabilization in pricing that would restore the market to more typical levels of activity. The method and timing of this resurgence remain uncertain, with increased distress potentially compelling more sellers to enter the market. (MSCI)

Commercial Real Estate Identified as Top Risk to Financial System in 2024 The Financial Stability Oversight Council’s annual report designates commercial real estate as the foremost financial risk in 2024. (MarketWatch)

REIT Portfolio Managers Foresee Growing Investor Interest in 2024 Despite operating in a challenging environment throughout 2023, REITs conclude the year on a positive note. Strategies emphasizing balance sheet discipline and transparency have positioned the sector optimistically for 2024, anticipating stability in interest rates and increased opportunities for external growth. REIT.com engages in discussions with industry experts to explore the prospects and obstacles anticipated in the coming year. (Nareit)

Six Years of Progress and Controversy in Opportunity Zones Governed by the Treasury Department, the Opportunity Zone Program came into effect in 2018 and immediately sparked interest in the commercial real estate sector. However, since its inception, the program has faced criticism regarding its effectiveness in uplifting and revitalizing underserved communities through new development initiatives. Recent proposals for reforms could potentially address these concerns. Yet, six years since its initiation, the actual impact of the program remains a subject of scrutiny. (Propmodo)

Tech Giants and Elon Musk Emerge as Major Real Estate Players Corporations such as Google, Facebook, and Elon Musk’s enterprises are becoming prominent players in the real estate landscape. Nationwide, these corporations are leveraging their influence and resources to establish modern company towns—mini-cities equipped with all the amenities of traditional civic life, including housing, retail, and public spaces. While not overtly branded, these projects mark a departure for companies like Google, Meta, and Disney, traditionally not associated with real estate development, taking matters into their own hands to address housing shortages. (Insider)

Morgan Stanley Seeks Opportunities Amid Commercial Property Turmoil Morgan Stanley is actively pursuing real estate opportunities arising from the upheaval in the global commercial property market. The firm’s real estate investing platform is exploring deals across various sectors, from apartments to industrial properties. The approach may involve employing diverse investment strategies, such as providing conventional credit or preferred equity, depending on the specific circumstances. (Bloomberg)

Impact of College Football on Housing Markets Life in Athens, with its population of approximately 127,000 residents, revolves around its primary employer—the flagship campus of the University of Georgia. Home to over 40,000 students and employing around 10,000 individuals, the city has witnessed rising rents in recent years, despite the addition of new housing units. Notably, much of the construction focuses on luxury off-campus housing to accommodate the expanding student population. (The New York Times)

Decline in the Warehouse Building Boom The surge in logistics facilities during the pandemic, driven by the demand from e-commerce giants like Amazon.com, is witnessing a slowdown. Many major investors are scaling back their involvement. Industrial property construction starts have plummeted by 48% in the first nine months of the year compared to the same period in 2022. This decline marks the most significant drop for this period since 2009. (The Wall Street Journal)

Real Estate Firms Advocate for Lifting Ban on Chinese Investment in Florida The Real Estate Roundtable, representing entities such as Blackstone, Citigroup, and Wells Fargo, is urging lawmakers to ease restrictions outlined in the Foreign Countries of Concern law. The legislation, enacted in July 2023, prohibits most purchases by Chinese nationals and entities and imposes constraints on real estate investments from individuals originating from other “countries of concern.” The Real Estate Roundtable is seeking adjustments to the law, particularly in relation to the use of Chinese capital in real estate projects within the state. (The Real Deal)

Atlas Merchant Capital Eyes Investment in U.S. Regional Banks Atlas Merchant Capital, led by Bob Diamond, aims to raise over $500 million for investment in U.S. regional banks. The firm adopts a versatile approach, targeting equity or debt investments in both publicly traded and privately held banks. (Bloomberg)

Renewed Interest in Retail Real Estate by Institutional Investors Major investment firms, which had steered clear of retail real estate for an extended period, are reevaluating their stance. Institutional buyers are acquiring properties like grocery stores and pharmacies, emphasizing the resilience of these recession-resistant establishments. The robust performance of the retail sector in recent times, coupled with decreased demand for office buildings in the era of remote work, has sparked renewed interest. Steve Plenge, CEO of Pacific Retail Capital Partners, anticipates a surge in funds directed towards the retail sector. (The Wall Street Journal)

D.C. Real Estate Leaders Alarmed by Potential Loss of Sports Teams Local real estate leaders in Washington, D.C., express concern over the potential departure of the Capitals and Wizards. With Virginia lawmakers passing a plan to entice the NBA and NHL teams across the river, industry figures