Power Players LPs: Investor Perspectives – Assessing Opportunities in a Volatile Market

[Published on May 22nd 2023]

The real estate investment market has been affected by the pandemic and faces challenges in deal-making activity and returns. However, with over $2 trillion of dry powder in the US available for real estate investment, there are still opportunities for investors and developers to generate risk-adjusted returns. In this article, we will explore some of the key questions on the minds of LPs and investors in the real estate industry.

CRE Markets and Sectors for Risk-Adjusted Returns

Investors and developers are focusing on different CRE markets and sectors to generate risk-adjusted returns. Multifamily and industrial properties are currently attracting significant interest due to their strong fundamentals and resilience to market shocks. These sectors have benefited from the pandemic, with increased demand for e-commerce and remote work driving demand for industrial and multifamily properties. Additionally, single-family rental properties are also gaining popularity among investors due to the growing demand for rental housing.

Challenges of Getting Deals Done and Strategies to Overcome Them

The near-term and long-term challenges of getting deals done in the current market include the uncertainty of the pandemic's impact on the economy, rising interest rates, high insurance costs, reduced occupancy, and soaring construction costs. These challenges have led to increased competition among investors for quality deals, making it harder to find attractive investment opportunities.

To overcome these challenges, investors are adopting different strategies, including diversifying their investment portfolios, increasing their focus on value-add opportunities, and exploring alternative financing options such as crowdfunding and private lending. Additionally, investors are leveraging technology to streamline their due diligence processes, improve deal sourcing, and enhance asset management.

Considerations for ESG & DEI

ESG (Environmental, Social, and Governance) and DEI (Diversity, Equity, and Inclusion) have become increasingly important considerations for investors in the real estate industry. ESG factors such as energy efficiency, water conservation, and sustainable building materials can help reduce costs and increase long-term value. DEI considerations can help improve tenant retention rates, reduce turnover costs, and enhance overall tenant satisfaction.

Investors are incorporating ESG and DEI considerations into their investment decision-making processes by conducting due diligence on properties, implementing sustainability initiatives, and fostering diversity and inclusion within their organizations.

LP's Outlook on Lending for Adaptive Reuse, Value-Add, and Construction Projects

LP's outlook on lending for adaptive reuse, value-add, and construction projects remains positive, despite the challenges in the current market. These types of projects have the potential to generate high returns due to their ability to add value and improve asset performance.

To mitigate risks, investors are conducting thorough due diligence on projects and developers, implementing strict underwriting standards, and diversifying their portfolios. Additionally, investors are exploring alternative financing options such as mezzanine debt, preferred equity, and bridge loans to fund these projects.

Conclusion

Investors and LPs in the real estate industry are facing a challenging environment in assessing opportunities in a volatile market. However, there are still opportunities to generate risk-adjusted returns by focusing on sectors with strong fundamentals such as multifamily and industrial real estate, diversifying investment portfolios, incorporating ESG and DEI considerations, and exploring alternative financing options.

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