Insights Blog - RE

Q&A Spotlight: Derek Li/JD Paramount, MFO - 25th Real Estate Private Equity Summit

Written by Derek Li | Mar 12, 2024 12:39:58 PM

As the macroeconomic landscape undergoes profound shifts, the real estate sector faces unique challenges and opportunities. In this speaker Q&A session with Derek Li, President and Managing Partner at JD Paramount, MFO, we delve into the impact of the current macroeconomic environment on LPs' allocations to real estate and explore strategies for navigating obstacles in commercial real estate (CRE) investments.

Q: How is the current macroeconomic environment impacting LP’s allocations to real estate?

Given the uncertainty around the path of inflation, tight credit conditions and looming recession, many LPs are actively considering a full suite of real estate strategies such as direct/fund, debt/equity, short term/long duration, etc. in order to have more balanced and well-positioned real estate portfolios, by limiting exposure to any particular asset class, strategy or geographic location.

Q: What are the top obstacles that LPs face when investing in CRE?

The drying up of distribution is impacting our liquidity and our capacity to invest in real estate at this point. When values of assets that we hold in other strategies and asset classes drop, fund managers and real estate sponsors stop selling assets, so expected distributions curtail. We depend on those distributions to meet funding obligations in other aspects of our portfolio.

Moreover, we are in the middle of the price discovery phase now. With the ongoing shortage of credit, depressed pricing for real estate assets, and $3 trillion of outstanding CRE loans maturing over the next few years, we remain cautious about our real estate allocations.

Q: Which geos, sectors, asset classes, and fund sizes do you feel LPs will be mostly actively allocating to in the CRE space in 2024?

I see many LPs actively participating in the Real Estate secondaries market due to a few advantages that it provides, such as liquidity and discounts. Also, downward pressure on underlying property values and little room for refinancing has created a wealth of opportunities for private debt in CRE. Lastly, markets such as Miami, Houston, and Nashville still remain attractive to many LPs because there are investment opportunities there that provide very attractive risk-adjusted returns for strategies such as preferred equity, private debt, value-add in residential housing, logistics, and data center.

Q: Why will you be speaking at iGlobal Forum’s Real Estate Private Equity Summit in NYC on March 26?

I want to show support and demonstrate that real estate is robust and resilient by offering insights into the dynamic landscapes of real estate investment. There are plenty of attractive investment opportunities out there regardless of what geopolitical and socioeconomic conditions might be, as long as all stakeholders in real estate remain vigilant and willing to adapt their strategies to meet changing needs and trends in real estate.

Amidst uncertainty, LPs are strategically diversifying their real estate portfolios to mitigate risks and seize emerging opportunities. By understanding the dynamics of CRE investments, adapting to market trends, and leveraging insights from industry experts, stakeholders can navigate through evolving macroeconomic landscapes and harness the resilience of the real estate sector for sustainable growth. Join us at the 25th Real Estate Private Equity Summit in NYC on March 26 to gain valuable perspectives and strategies for success in real estate investing.