Heidi Shin

Listed REITs returned +2.1% this week, outperforming the market value weighted S&P by +255bp and the equal weighted S&P by +222bp. The sector has now risen five out of the past 6 weeks. Real estate was the 2nd best of the S&P sectors trailing only energy. Sixteen out of 18 subsectors were positive as cell towers (+4.9%), industrial (+4.4%), healthcare (+3.4%) and shopping centers (+3.4%) led while lodging (-0.7%), apartments (-0.6%), diversified (+0.1%) and specialty (+0.1%) lagged. While YTD returns stand at -4.3%, valuations have risen+6.4% since the YTD trough last month and are nearly 20% above the late October 2023 trough. Here's your pretty picture.

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📈🏢 Sternlicht's Starwood REIT Faces Liquidity Crunch Amid Redemptions! 💥 According to a recent report, Starwood Real Estate Income Trust (SREIT), led by Barry Sternlicht, is facing a liquidity crunch due to a surge in redemption requests. 📉💸 The report reveals that SREIT has seen a staggering $1.2 billion in redemption requests in just the first quarter of 2023, which is nearly half of the $2.5 billion in redemptions it processed in all of 2022. 😮 This surge in redemptions has led to a significant liquidity crunch, with the REIT's cash balance dropping to just $122 million as of March 31, 2023. 📉 Sternlicht, however, remains optimistic about the REIT's future prospects. In a recent statement, he said, "We are confident in our ability to navigate this challenging environment and continue to deliver strong returns for our investors." 🌟 Despite the liquidity crunch, SREIT has continued to make strategic investments in the real estate market. In the first quarter of 2023, the REIT invested $350 million in new properties, including a $150 million investment in a multifamily property in Dallas. 🏠🏢 As the real estate market continues to evolve, it will be interesting to see how SREIT navigates this liquidity crunch and continues to deliver value to its investors. Stay tuned for more updates! 👀📊 #realestate #REIT #liquiditycrunch #investing #StarwoodREIT #BarrySternlicht

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Our investment thesis is similar. If you can underwrite a deal conservatively to weather an upcoming storm, the proforma might not look exciting on paper today but has an outsized opportunity to outperform in the medium-long term.

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Great summary from Jay Parsons on KKRs move to acquire $2B of multifamily assets from Lennar at a cap rate in the low 5% range. We share a similar thesis as KKR that we are seeing a "once-in-a-decade" opportunity to acquire strong assets at a discounted basis, knowing that we will likely face ~18 months of softness followed by a strong rebound in growth fueled by strong demand and limited supply. If this thesis aligns with you and you are an accredited investor, I would like a look at our next acquisition opportunity, Solana at the Crossing. http://www.solanaindy.com <----- Learn more, get the deck, scheduel a meeting today. Accredited investors only. #multifamily #realestate #investing #investingtips #notinvestmentadvice #cashflow #indianapolis #midwest

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Listed REITs returned -3.1% vs -3.0% for the market value weighted S&P and -1.4% for the equal weighted S&P. The sector was weighed down by -11.2% total returns for industrial following earnings that missed consensus expectations, but five other subsectors were positive. The week ended on a positive note with valuations rebounding on Thursday (+0.13%) and Friday (+0.53%) as real rates stabilized after peaking at 2.25% earlier in the week. Here's your pretty picture.

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Family Offices Are Boosting Allocations to Alternative Investments (Private Equity, Private Credit, Real Estate) 1) In 2024, KKR’s survey of 75 family offices, 52 percent of their portfolios were to be invested in alts, up from 42 percent in 2022. The expansion is coming at the expense of all or most other asset classes. 2) Family offices, like other alts investors, think 2024 will be a standout vintage year. Interest rates remain higher and are expected to force distressed assets / companies to sell or recapitalize, even as the economic outlook improves. 3) “They understand the benefits the illiquidity premium plays in compounding capital in a tax efficient manner to build wealth for future generations,” Henry McVey, the head of global macro and asset allocation at KKR and the CIO of the firm’s $39 billion balance sheet. Read the full article here -> https://lnkd.in/gYbTjf8H #familyoffice #wealthadvisor #wealthmanagement #capitalallocation #alternativeinvestments #realestate #privateequity #privatecredit

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Commercial Observer did a great job highlighting this topic/ trend: https://lnkd.in/eF_WFPNP Similar impacts, while different in scale, are evident on both sides of the border in commercial real estate investments.

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Institutional money is back! KKR, a prominent private equity investment firm out of New York has reentered the multifamily investment space by acquiring over 5,200 units across the U.S., including Texas and Florida. This move signals renewed confidence in the multifamily sector, as some firms are banking on the dwindling apartment construction starts to boost occupancy and rent growth in the near future. This comes shortly after Blackstone’s $10B purchase of Apartment Income REIT in April. Opportunities are on the horizon, and we will begin to see more as the year progresses. As it is, distressed apartment sales totaled nearly $1B in Q1 alone. https://hubs.li/Q02DKJs50 Interested in learning more about Club Capital? Join our preferred investor club to get access to our latest investment opportunities and our education blogs and podcasts. https://hubs.li/Q02DKMnn0 #PreferredEquity #InvestmentStrategies #CREInvestments

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Transactions, liquidity, price discovery, and valuations spin in a circle. Recently, the lack of transactions has affected valuations, which makes qualifying for liquidity through financing difficult to obtain, driving down valuations when owners have to sell for lack of refinancing, making them stick because price discovery becomes warped, and so on. That may be coming to an end. According to an interview Global Co-Head of Blackstone Real Estate Nadeem Meghji gave to Bloomberg Television, liquidity is beginning to return to the markets. His observation wasn't unqualified. It's a question of opportunities and who can respond to them. "It's one of the most exciting opportunities we've seen in a long time," Meghji said. "If you take a step back, we look at the real estate cycle, and yes there's been bad news: higher interest rates and challenges in the office business. But we believe that bad news is now priced into asset values, values are bottoming. Now is the time to play offense. Cost of debt has come down. The availability of debt has improved. New construction has come down dramatically. That creates the foundation for a recovery." "The sentiment will remain negative because there will be losses associated with deals that were financed in a different environment," he added. "When you see green shoots and you see negative sentiment, you play offense. We've deployed nearly $20 billion of equity globally in just the last six months in our highest conviction sectors because we think now is the time to be aggressive and we're not going to wait for the all-clear sign because once that comes it's too late. Our pipeline today is as big as we've seen in 18 months." That's on the buying side, but they've also been selling. They've sold $20B across 374 separate assets over the last two years, as interest rates increased.

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I didn’t have a chance to post this interview on Bloomberg from the early half of 2024 but the story on capital structure issues for commercial real estate is continuing to unfold.  Some banks aggressively tackled impaired loans and are now in good shape but there’s still a lot of wheat to be separated from the chaff in the sector, especially at regional and local banks. My take, overall balance sheet improvements going into 2025 will lay the groundwork for a healthier medium term perspective for the sector as a whole. This means tighter spreads and a resumption of business as usual on the capital markets side of the business that will translate into improving cost of capital for borrowers. If you're still on the wrong end of interest rate convexity (maturity repricing) you should have gotten the message by now.

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Per the KKR Report - "The once-in-a-decade opportunity for real estate equity investors is complex, but also exciting. It’s time to start thinking of fear as a friend." Institutions are starting to recognize what we saw early last year. We launched our ATX Fund last year to take advantage of the market shocks. Our investment strategy: 1. Market-Impacted Properties: Properties with sellers that have been affected by dramatic and sudden interest hikes with maturing and/or floating debt and impacted by higher insurance costs, G&A, and/or property taxes. We believe there is a relatively short window to take advantage of this economic environment. 2. High-Growth Markets- Markets with strong population and job growth compared to broader averages. 3. Downside Protection- Investments with strong in-place cash flow to protect against economic uncertainty, while avoiding exotic or aggressive leverage. 4. Middle-Market Deals- Deals requiring $5-20 million of equity largely fly under the radar of institutional investors. 5. Long-Term Investment- Investments are analyzed within a 5 and 10-year context. This horizon helps us avoid myopic investments and look past short-term trends that distort forecasts. To those currently invested in real estate that may be struggling, the KKR report mirrors my view on holding firm where it makes sense: "multifamily real estate owners who can carry their investments through the next two years are poised to benefit from sustained structural demand and a pronounced shortage of new supply starting in 2026." https://lnkd.in/ePTVZDZX

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From CRE DAILY: Private Equity Seeks Bargains in US Real Estate Distressed investors are seizing a rare chance to buy troubled US CRE assets, with private equity firms leading the charge. Betting on distress: Private equity firms are circling the distressed US property market like sharks sensing blood in the water. According to Preqin data, approximately 64% of the $400 billion earmarked for property investments is focused on North America, marking the highest allocation in two decades. Filling the gap: The US CRE market is on sale, with office values dropping nearly 25% last year due to remote work. This year, $1 trillion in CRE debt will mature, leading to a surge in defaults as borrowers struggle to repay. PGIM reports a $150 billion gap between maturing loans and new credit availability, creating prime opportunities for patient investors. Shrinking pool: While the US attracts private equity buyers, the global pool of PE capital for CRE has shrunk. The amount set aside for real estate debt strategies dropped 26% to $56.1 billion by May 2023, per Preqin. This decline could limit interest in non-performing CRE loans worldwide. Charles McGrath of Preqin notes, “Dry powder is declining” due to higher borrowing costs affecting fundraising and transactions. This comes as European CRE debt, with LTV ratios over 100%, nears €160 billion, highlighting severe financial strain. The looming crisis: US banks, heavily exposed to real estate, face severe risks, highlighted by NYCB’s and First Foundation's recent capital injection. Oaktree’s analysis suggests that a 20% drop in CRE values could put more US banks at risk than during the 2008 crisis. Barry Sternlicht of Starwood Capital Group has also noted ongoing lender challenges, with Starwood’s income trust tightening withdrawal limits to maintain liquidity. ➥ THE TAKEAWAY What experts think: While the US presents a fertile ground for distressed asset buyers, the global CRE market faces prolonged recovery challenges. The global pool of PE capital for CRE has decreased by 26% to $56.1 billion through May 2023. This decline could limit interest in non-performing CRE loans globally, as higher borrowing costs deter fundraising and transactions.

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Agriculture, health care, infrastructure are just a few key topics Seema Shah and George Maris cover in the #PowerOfIdeas series. Each sector reveals interesting opportunities for investors. https://bit.ly/4b6LuOP

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Investors led by Starwood Capital Group are exploring a potential buyout of ESR Group, a major Asian warehouse developer, sources familiar with the matter revealed. Talks are underway with minority shareholders to assess interest in a take-private deal, with the possibility of some investors retaining stakes. However, decisions are pending, and an official announcement is yet to be made. This move reflects a trend of increasing take-private transactions in Hong Kong, injecting vitality into the region's dealmaking landscape. Notably, ESR's significant presence in logistics and data centers aligns with Starwood Capital's strategic focus on these growth sectors. While both companies have refrained from commenting, discussions indicate the potential for significant developments in the near future. #Buyout #Growth #Investment #Warehouse #RealEstate #HongKong I Bloomberg News I Dong Cao I Pei L. I Manuel Baigorri I Low De Wei (Dexter)

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Recap Or Acquisition: We often source LP equity for sponsors in the form of a #recapitalization. Instead of having the LP close on the #acquisition with the sponsor, a recapitalization is performed on an asset that is already under ownership. A key reason why a #sponsor would need to recapitalize (as opposed to selling) is that their current LP on a transaction needs/wants to exit, but they (the GP) still #believe in the deal and would like to continue working it. What's interesting about recaps is that the world is kind of split on how to perceive them. Some LPs #love recaps for the following basic reasons: - sponsor already #owns the deal and knows it inside-out (no worry of finding skeletons...) - the fact that they want to stay in the deal after years of ownership is a sign that there's still #potential to create value - alignment of interest in terms of due-diligence. Limited risk of #fraud by seller, (because the seller is staying in the deal) - clear understanding of operating #expenses - often can #assume fixed rate debt sponsor secured with previous LP Some LPs, however, will absolutely #never touch a recapitalization. Basic reason being: - Sponsor is (often) cashing out and has no real skin in the game to need to #perform well for the new LP - No reason to assume the sponsor is giving a better price to new LP. Not a #clear alignment of interest with either the previous LP or the new one. I personally love recaps, and really enjoy working on them. I'd be curious to see what the investors in my network think about the above discussion. Elijah Brown Eduardo Viesca Rob Beardsley Peter Kling Aryeh Kieffer Clarence Wong, CCIM

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Appraisers in the U.S. need better tools that allow them to use more judgement in valuing assets. My colleague Willem Vlaming has been developing work showing that in parts of the world with low market liquidity and few comparable sales, that appraisal teams have been better able to capture the decline in asset values. http://ms.spr.ly/6040Yw5ts MSCI Real Assets #CRE

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Another major statement of confidence in the US #realestate sector. KKR making another bet of $2.1bn on the #multifamily sector; hot on the heels of their recent #studenthousing purchase. The prospects of the #multifamily sector seem poised for a recovery in values with supply limited due to curtailed development activity, potentially lower rates and continued strong demand from tenants as the cost of ownership continues to be a barrier to most people.

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Check out this graph put out by MSCI Inc. showing US multifamily transaction volume through May '24. Down approx. 75% from peak '21-'22 & down about 50% of pre-covid average. Bad news is that it has been a very rough 18 months for the multifamily capital markets space. Good news is I struggle to see how the volume stays this low for an extended period of time. In my humble opinion, a combination of lower rates, sellers accepting the new value reality and forced sales from debt maturities or distress will likely bring a return to pre-covid transaction volume at some point in the next 12-24 months, so hang in there!

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