August 2, 2019
By Melissa Baer
A panel of commercial real estate finance experts recently gathered at Connect Bay Area to discuss the region’s current investment climate. Real estate players across the buying, lending and selling space addressed critical issues, including where investors are finding higher yield; public vs. private REITS; preferred investment strategies; the role of foreign investors; the growth of non-bank lenders, and diversification into nontraditional property types.
The panel was part of an annual conference that drew an audience of more than 300 commercial real estate professionals to San Francisco. In addition to four deep-dive panels, keynotes were delivered by San Francisco City and County Treasurer, Jose Cisneros, as well as the Oakland Athletics’ Lydia Tan.
Moderator Brian Bailey, subject matter expert at the Atlanta Federal Reserve, began the session with an overview of the country’s economic state, pointing out that an average of 194,000 jobs have been created every month over the past 12 months. Adding that consumer and retail spending are continuing to rise, Bailey believes there is a sustained demand for commercial real estate.
To the contrary, he also said that even though conditions are currently steady, signs are beginning to point to a slowdown. “The title of this panel is perfect because the two words that I would use here are ‘it’s complicated.’”
Bailey considers the factors driving these complications are the negative yields overseas, the inversion of the yield curve and the issues around affordable housing.
Bringing the conversation to a local level, the words “competitive,” “active,” and “evolving” were used when the panelists were asked to describe the current climate of the Bay Area.
“It’s difficult to get deals done right now in and around the Bay Area,” Catherine Minor, vice president and portfolio manager at PGIM Real Estate said. However, Minor did say she is finding opportunities in the life sciences market and in repositioning, noting PGIM’s recent investment in downtown San Francisco’s Crocker Galleria mall.
In addition to repositioning, other trends that were discussed are upticks in the secondaries market, an unexpected amount of growth in the tech sector, and creative solutions to the rising construction costs.
The panelists also spoke on the vast amount of available capital and where it is being deployed. “Our core fund strategies don’t change significantly, and we invest in targeted markets that have highly educated workforces,” Minor said.
“Even though we may be at the end of the cycle, the fundamentals and capital inflows show that we still may have some legs left,” Justin Anstey, vice president, portfolio management at Veritas Investments said. “We are fortunate to partner with longer-term investors, so we are still seeing plenty of deal flow in the area.”
With the Bay Area traditionally a center for foreign capital, the conversation shifted to the pullback of money from China and whether the panelist have been affected. “We’ve seen China back out a bit, and the trade war isn’t necessarily helping that,” Anstey said. “But we’re also seeing that capital being replaced with Canadian and European investors.” Minor echoed the sentiment and added she has noticed more activity from Japanese investors. Additionally, institutional investors are also backfilling the missing capital, panelists said.
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