The upcoming U.S. presidential election, as well as the ongoing war in Ukraine and the newly emerged conflict in Israel, are only some of the challenges that global institutional real estate investors are navigating as they decide where to park their funds.
"It's not a great time to increase your real estate portfolio," said Richard Squires, founder of Lennox Capital Partners, which has $1.4 billion in real estate assets.
Three of the five traditional real estate types — office, retail and hospitality — face various market threats, while industrial and multifamily properties have yields that haven't moved up and interest rates that have yet to decrease, making for a less than satisfying return, Squires said.
"My conclusion is with interest rates being up, values need to come down," he added. "There's more downside today rather than upside due to the rapid increase of interest rates. We need to take time for the market to adjust and prices to continue to slide a little bit."
Squires spoke at a panel this week in the Dallas area for the Sovereign Wealth Fund Institute's Family Office Round Table, the organization's first time hosting the event in North America. Global institutional investors from throughout the world gathered to discuss private equity trends, family office deal flow and real estate investment.
The invite-only event also brought together investment and portfolio managers from throughout the world and featured keynote speaker Robert Kennedy Jr., who announced this week he plans to run as an independent for U.S. president. One of the panels included Stephen Kennedy Smith, principal at Park Agency and Joseph P. Kennedy Enterprises, the family office of the Kennedy family.
Complicated Market
The real estate market is "complicated" right now, especially with $1.5 trillion of commercial real estate loans coming up for refinancing in 2025, said Kim Diamond, a board member of Homz Global, which is building a portfolio of sustainable and attainable housing developments across the United States.
"Although we know that real estate is a cyclical business, we've seen a significant secular change [since] COVID in the form of hybrid work, which is dramatically and possibly permanently reducing demand for office space, and that's contributing to some of the doom loops in some America's cities, particularly San Francisco," Diamond said.
But Diamond believes opportunities can arise out of chaos and, ultimately, "real estate is worth it."
Squires of Lennox Capital Partners plans to focus on high-quality real estate in growth markets that are insulated from the economic blips that could arise in the future. His advice: "Hold your powder and invest for the long term."
The Patel family office, which was built on the lodging and hospitality industry, has seen firsthand the challenges in this part of the real estate industry that has struggled with occupancy, labor issues, supply chain and constraints in the debt markets, said Dipika Patel, chairwoman of the family office.
"We're seeing there's a lot of buyers, but not enough availability of debt," Patel told the audience. "Without that availability of debt and sellers not willing to come down on price, we're starting to diversify and have pivoted in other geographies since the pandemic."
The Patel family office, based in Dallas, has been buying hotels and lodging properties in the Middle East and specifically in Saudi Arabia. The family office recently launched a $5 billion hotel fund in the Middle East, North Africa and Egypt in an effort to follow growth.
In the U.S., interest rates once thought to be "inconceivable" have become the norm and will likely continue to be the norm for the next 12 to 18 months, said Scott Werbel, managing director of acquisitions at The Ardent Cos.
"On the commercial real estate side, we have been very slow to invest," said Werbel, who oversees real estate acquisitions and originates bridge loans across the globe for the Atlanta-based firm. "We're still active in retail" with investments in Charleston, Nashville and London, he said.
The Ardent Cos. is actively raising a fund totaling 250 million pounds out of its London office to take advantage of some of the current dislocation in the United Kingdom's real estate, Werbel said.
"While the banks have been on pause, we have been much more active on our debt lending space than our equity space," Werbel said.