Real Estate Capital Scoreboard® – January, 2021

Chicago, Illinois, January 5, 2021 – The year 2020 closed as one of the most tumultuous in modern history, with health concerns driving the economy. Few could have predicted the unforeseen financial and social impacts on the real estate industry, in particular. Space needs almost instantly shifted with traditional lodging, office, and retail usage quickly vaporizing. Meanwhile, industrial and multifamily assets continued to thrive. And realty capital markets forcefully responded backed by flexible fed policy, as historically low-interest rates prevailed.

What lies ahead for realty capital markets this year? The supply of capital remains at peak levels. So investors need to turn to the demand side, seeking income-property aligned to pandemic economics. More than ever, properties must offer competitive health and safety standards while providing relevance of usage. Investors focus on “essential” types of assets, such as personal living space (e.g., apartments). Investors gravitate to those property types linked to personal attention, mainly properties offering direct distribution of goods and services to the consumer. As such, this year’s investors bypass social-gathering facilities such as shopping centers, entertainment, and office buildings.

As investor demand shifts, yields remain highly competitive, fueled by favorable borrowing rates and the lack of desirable assets. Fewer opportunities exist in the financial engineering of deals, unlike in the past decade. Instead, the best routes to profitability focus on repurposing existing brick-and-mortar and creating new developments tuned to the pandemic’s new realities.

The Real Estate Capital Institute’s director, John Oharenko, predicts, “Today’s ‘distressed’ deals will be tomorrow’s opportunities, as investors learn how to reposition retail, office and lodging assets to function within everchanging health-safety space needs.”

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