Research Reports

A Rationale for Including Hotels in a Diversified Real Estate Portfolio

Investing in hotels allows investors to benefit from traditional real estate attributes such as current income, asset appreciation, and portfolio diversification. Hotels also have additional levers to generate alpha, including superior asset and operations management. Further, investing in hotels provides investors with the opportunity to capitalize on the continued growth of travel, which will be positively influenced by demographic trends, particularly due to the depth and breadth of the Baby Boomer and Millennial generations, business travel recovery, and advancements in technology and innovation.

Move to the Middle: Boost the Efficiency of your Multifamily Portfolio

Middle-income rental housing is fundamentally the best investment opportunity in multifamily today. A combination of favorable demographics and the ever-increasing need for affordable homes is improving demand fundamentals. At the same time the luxury supply wave has crested, which will create a window of opportunity for investment in this subsector in the coming years. In this paper, we will define the subsector, its fundamentals, benefits and risks, and show investors how an allocation to middle-income rental housing can help generate higher and more stable returns from their multifamily portfolio, while also addressing a critical societal need to preserve affordable housing.

The U.S. Commercial Real Estate Investable Universe

The goal of this analysis is to provide investors with a benchmark for the size and scale of the U.S. commercial real estate (CRE) market, individual property sectors and the “institutional” quality portion of the market. Up to this point, published estimates on the size of the commercial real estate investable universe primarily focus on country-level global comparisons, taking a top-down approach to estimate the size of the overall commercial real estate market in each region. Existing literature does little to estimate the value of specific property types, let alone alternative property sectors. This report aims to fill this gap in the commercial real estate information landscape. Focusing exclusively on the United States, this report takes a bottom-up approach, aggregating estimates for the size of individual commercial real estate property types to arrive at a value for the overall commercial real estate market. This approach allows for segmentation between traditional and alternative property types, as well as the ability to estimate the share of “institutional” real estate by sector.

ALA Insights: U.S. Multifamily Market Conditions – October 2024

Is it Time to Reallocate to Real Estate?

Multi-Tenant Light Industrial – Maintaining Resilience in Turbulent Economies

Multi-tenant light industrial real estate continues to exhibit compelling fundamentals. The sector has demonstrated remarkable resiliency during major economic disruptions, including the Global Financial Crisis (GFC) in 2008, the depths of the COVID-19 pandemic in 2020, and the rapid interest rate hikes from March 2022 to July 2023. In 2023, broader industrial fundamentals experienced a slight deceleration, primarily due to factors such as a wave of new deliveries, tenant demand normalization, extended inflationary periods, elevated financing costs, and global economic uncertainties. Despite these challenges, optimism remains high for multi-tenant light industrial properties due to their innate, fundamental advantages and secular tailwinds. Favorable changes in capital markets, including anticipated interest rate cuts in the near future, are expected to further enhance the sector’s performance.

Is Now the Time to Re-Enter Open-End Real Estate? – US Private Real Estate Market Insights

Real estate (as it refers to physical properties and assets) is a critical foundation of the global economy for both businesses and consumers. For investors, the inherent scarcity of real estate provides a natural value that is independent of inflation, thus providing an inflation hedge. Further, real estate provides income to equity owners, with the ability to benefit from capital appreciation through improvement of the assets. While the Real Estate Sector (“Real Estate” or the “Sector”) has been a challenged asset class in recent years, we are optimistic the next 6 to 12 months will be a pivotal time and could offer potentially significant upside for investors allocating to the space while further diversifying an investment portfolio. In this paper, we will discuss the recent challenges for real estate, optimism for the asset class and why we believe now may be the time to invest in the Sector, particularly in open-end real estate. Open-end real estate funds are perpetual-life funds that tend to consist of core or core-plus strategies. These strategies focus on stable, income-producing properties that offer a low level of risk alongside the potential for appreciation. Additionally, open-end funds are semi-liquid, allowing investors to enter and exit the fund throughout the vehicle’s life. This paper specifically focuses on the private open-end real estate equity market.

Mortgage Loan Repurchase Agreements – What Investors Should Know

Since the United States Federal Reserve began increasing interest rates in March 2022, the Federal Funds rate increased from a range of 0.00%-0.25% to 5.25%-5.50% today. High base rates have caused significant duration risk for many existing real estate loan portfolios owned by regional banks and have been a catalyst for multiple recent commercial bank failures. Many commercial banks have significantly tightened their lending standards for new real estate loans since early 2022 as they look to de-risk their portfolios and avoid regulatory scrutiny. As a result, real estate borrowers who traditionally have relied on commercial banks for approximately 38% of all commercial real estate loans, have needed to look for additional sources of capital to finance real estate investments. In the absence of commercial bank financing, real estate debt funds have experienced a resurgence since they are able to lend at higher interest rates than in prior years.

Scaling Success: Small-Bay Industrial’s Steadfast Foundations

Industrial has long been considered the darling of real estate, emerging through the COVID-19 pandemic as a CRE powerhouse despite the softening economy and tight lending environment. More notably in the industrial asset class are small-bay warehouses, which have shone brightest in the spotlight as they present a promising investment opportunity as a facilitator for local distribution networks, an excess inventory solution to combat supply chain disruptions, and a diversified industrial alternative with capabilities to accommodate a wide array of tenant needs. Small-bay industrial properties typically fall below 200,000 square feet in size, with units ranging below 50,000 square feet.

Multifamily Preferred Equity – A Point-in-Time Opportunity

ORG believes that investing in multifamily preferred equity is one of the more attractive opportunities today as investors can earn equity-like returns on debt-like investments. The current distressed period in real estate is unique because it has primarily resulted from a capital markets dislocation as opposed to a deterioration of operating fundamentals. The resulting gap in stressed capital structures is likely to warrant the need for a preferred equity piece that may yield double-digit returns with significant subordinated equity. A key factor to consider in generating strong returns is the inclusion of a prepayment penalty in the negotiated loan terms, and although yield maintenance is the most attractive to investors, the market may not allow for its inclusion. Preferred equity investors should then necessitate a minimum multiple to mitigate prepayment risk. Due to the resilient fundamentals and ability to capitalize on the supply-demand imbalance, ORG believes multifamily preferred equity to be a high conviction opportunity likely to persist through 2026.

Necessity Retail – The Battle-Tested Retail Niche

Following the Great Financial Crisis (GFC) of 2007-2008, “retail” became synonymous with “mall”. This misleading equation grew out of private capital’s shorthand for various shopping center formats, including neighborhood centers, power centers, lifestyle centers, single tenant retail, and yes, malls, among others. By lumping them together, they failed to differentiate retail into its component parts, which have proven historically to perform very differently. This paper focuses on the retail subsector with the strongest and most consistent track record—necessity retail.

2024 United States Real Estate Market Outlook

2023 was a year that surprised many investors as the potential economic recession that was seemingly imminent at the beginning of the year never materialized in a meaningful way. Economic conditions were favorable for many investment sectors with falling inflation, steady corporate earnings, low unemployment and high economic growth all being capped off by the United States Federal Reserve hinting at multiple interest rate decreases in 2024. For real estate investors, the year was not quite as positive with investment volume remaining at record lows and wide bid-ask spreads bringing current real estate valuations into question. In this article, ORG will provide a review of the real estate markets in 2023 and what investors should look forward to in 2024.

Keep Your Eyes on the Prize – Steady Improvement Expected for Multifamily Capital Markets in 2024

The past 1 1⁄2 years have been difficult for the multifamily industry from a capital markets perspective. This is especially the case when making comparisons with the industry’s spectacular late 2020 to early 2022 period of record investment activity, low borrowing costs, and impressive asset appreciation. But keep your eyes on the prize. Multifamily’s capital markets environment — the universe of all debt and equity decisions, valuations, risk pricing, and investment strategies for existing and to-be-built assets — will improve considerably in 2024. Even stronger gains are expected in 2025. Multifamily’s capital markets revival combined with the sector’s long-term market strength based on robust demand will keep multifamily product in a favorable investment position over the long haul. This paper reviews the principal macroeconomic forces underlining multifamily’s recent capital markets dislocation, particularly Federal Reserve monetary policy and market interest rates. It examines the major capital markets challenges within the financing, investment, and asset pricing arenas. It provides views on how the principal drivers and components of multifamily capital markets are likely to trend in 2024 and 2025.