Insights from the National Institutional Investor & Private Equity Forum

On September 10, 2023, a gathering of top commercial real estate (CRE) experts convened at 237 Park Avenue in Midtown Manhattan for the National Institutional Investor & Private Equity Forum, hosted by Commercial Observer. The symposium featured a range of discussions covering pressing topics such as cryptocurrency, family offices, interest rates, and the impact of artificial intelligence on the industry.

Opening Remarks: A Dialogue on Market Dynamics

The event kicked off with a compelling dialogue between Jeff DiModica, president of Starwood Property Trust, and Grant Cardone, founder and CEO of Cardone Capital. Moderated by John D. Wilson, a partner at King & Spalding, the conversation set the tone for the day by addressing the current state of the market.

DiModica revealed that Starwood, which manages $30 billion in assets, anticipates record origination volumes in 2025. However, he noted that the industry is still grappling with a significant decline in transaction and refinance levels compared to the peak of 2021. U.S. market transaction volume has plummeted from $680 billion to $450 billion in just one year. Despite this downturn, DiModica emphasized that substantial capital has been raised for debt, indicating a resilient appetite for investment.

“We’re all trying to raise capital as quickly as we can to grow into this opportunity,” he stated, highlighting the challenges of raising equity amid tighter spreads. He pointed out that banks are lending at historically low spreads, making it easier to create mezzanine financing at attractive rates.

The Cryptocurrency Connection

Cardone took a bold stance, declaring that now is the best time to invest in real estate throughout his career. He noted a growing trend of investors entering the CRE space through cryptocurrency, particularly Bitcoin. Cardone’s firm has successfully integrated cryptocurrencies into their capital stacks, allowing them to purchase physical real estate below replacement cost while maintaining liquidity through Bitcoin.

“We have the stability of real estate, with cash flow and tax write-offs, combined with Bitcoin,” Cardone explained. This innovative approach has reportedly increased returns from 12-15% to as high as 25-35%, garnering a positive response from investors.

Interest Rates and Economic Implications

The discussion then shifted to the current interest rate climate. Cardone criticized Federal Reserve Chair Jerome Powell for not acting swiftly enough to cut rates, while DiModica warned that rapid rate cuts could destabilize long-term yields. He cautioned that if the Fed lowers the short-term rate too quickly, it could lead to inflationary pressures as the market reacts.

“Being a market practitioner, I know that if you force the federal funds rate from 4.25% to 0, then the 10-Year Treasury will likely rise significantly,” DiModica said, emphasizing the delicate balance the Fed must maintain.

Capital Markets Projections

The next panel, moderated by Mark Mindick of Citrin Cooperman Advisors, focused on capital markets projections and lessons learned over the past 18 months. Andrew Warin from Newmark noted a shift in client attitudes, with less reluctance to engage in equity recapitalizations and transactions compared to the previous year. He highlighted the emergence of novel capital solutions, such as GP-led secondary funds and net asset value loans, which have gained traction.

Abbe Franchot Borok from BGO echoed this sentiment, noting a disciplined approach to investing and an expected uptick in transaction volumes, particularly in value-add and senior secured lending.

Jeanette Abate from Tishman Speyer reported that her firm has closed $7 billion in commercial mortgage-backed securities (CMBS) deals over the past year, despite 2023 being the lowest volume year since 2011. She expressed optimism for 2025, predicting a banner year for CMBS loans.

Concerns Over Capital Availability

While there were positive indicators, Andrew Dansker, CEO of Dansker Capital Group, raised concerns about the compression of spreads in debt funds, suggesting an oversaturation of capital in that space. He warned that commercial banking faces a serious capital availability issue that has yet to fully reveal its impact.

Sam Chandan, founding director of the Chen Institute for Global Real Estate Finance, shifted the focus to labor market dynamics, expressing concern over consumers’ ability to drive economic activity. He cautioned that aggressive short-term rate cuts could have unintended consequences on long-term rates.

The Rise of Alternative Financing

The symposium also featured discussions on the rise of alternative financing, led by Leo Jacobs of Jacobs P.C. Scott Crowe from RXR described a structural shift in the lending industry, with banks becoming more risk-averse following the regional banking crisis of 2023. He noted that banks are increasingly opting for loan-on-loan financings with debt funds rather than direct lending into real estate projects.

Nicholas Baccile from Canyon Partners Real Estate emphasized the hands-on approach of debt funds and private credit shops, which can offer more flexible solutions compared to traditional banks. This adaptability is crucial in a rapidly changing market.

Investment Strategies: Multifamily, Retail, and Data Centers

The forum also explored current investment strongholds, particularly in multifamily, retail, and data centers. Teodora Zobel from Midwood Investment and Development highlighted strong investor appetite for stabilized multifamily and retail assets, while Evan Abraham from InterVest Partners pointed out the favorable supply pipeline for multifamily investments.

Steven Binswanger from JLL took a contrarian view, advocating for data centers as the best investment opportunity due to their high yields and stable cash flow from reliable tenants like Amazon and Microsoft.

The Evolving Role of Family Offices

The final discussion focused on how family offices are adapting their investment strategies in a dynamic market. Saul Sutton from Catal Group cautioned that effective family office operations typically require a minimum of $500 million in capital. He noted a shift in family offices from passive investors to active participants in directing capital flows.

Rachel Loeb from Benenson Capital Partners shared insights on repositioning assets and acquiring land for higher-value uses, while Tim Richards from Goldman Sachs discussed the evolving support from private banks for family offices.

Conclusion: A Complex Landscape Ahead

As the day concluded, it was clear that the commercial real estate landscape is undergoing significant changes. While challenges remain, particularly concerning interest rates and capital availability, there are also promising opportunities in emerging asset classes and innovative financing strategies. The insights shared at the National Institutional Investor & Private Equity Forum will undoubtedly shape the future of the industry as it navigates this complex environment.

For further inquiries or to connect with the speakers, please reach out to Brian Pascus at bpascus@commercialobserver.com.