Commercial Observer's annual 'Institutional Investor & Private Equity Forum' took place on 16 September in Midtown Manhattan. There, some of the most prominent names in commercial real estate investment commented on the state of the capital markets. Shortly before the Federal Reserve's anticipated first short-term interest rate hike in three years – which occurred later that same afternoon – Katie Keenan of Blackstone, Global Head of Core-Plus Real Estate and CEO of Blackstone Real Estate Income Trust (BREIT), opened the forum.
Keenan explained why the US market currently offers a 'compelling environment for real estate'. This is largely due to an ongoing recalibration of asset values, growth in cash flows, and decades-low supply in asset classes such as multifamily and retail. She also highlighted the growing demand driven by artificial intelligence, digitalisation, and e-commerce. Keenan noted that 90 per cent of Blackstone's Core-Plus portfolio consists of logistics, data centres, and multifamily properties, which benefit from the conservative nature of Core-Plus investment.
Capital Markets and Asset Classes in Focus
Keenan stated that debt capital markets are as healthy as they have been for a long time, with readily available and reasonably priced capital. 'When you have growing demand and stagnant or shrinking supply, that has significant implications for cash flow and growth,' Keenan said. She emphasised that it is not about cap rate compression but about 'buying good assets that can compound over time and deliver a significant portion of their return along the way.' She referred to BREIT's 15-year track record, which has achieved a net return of 9.4 per cent over the last 10 years, 35 per cent more than the public REIT market.
The second panel discussion of the morning addressed the state of institutional real estate and capital flows. Greg MacKinnon, Head of Research at the Pension Real Estate Association, humorously compared the market to a patient who 'has left the intensive care unit but is still under observation in the hospital.' He stressed that the commercial real estate market had overcome the worst effects of the higher interest rates and regional banking crises of 2022 and 2023. Positive developments were noted in senior living and retail due to supply shortages.
Paradigm Shift and Market Outlook
Adriana de Alcantara of Hines U.S. Property Partners highlighted her company's aggressive approach, having invested $1 billion in its open-ended institutional fund and another $1 billion in its non-traded REIT. She emphasised the importance of income and fundamentals: 'Real estate is less complicated than you think: as long as you buy in the right location and at the right price, you're on safe ground.' Miles Treaster of Cushman & Wakefield described a 'paradigm shift': commercial real estate players were gradually accepting that the boom period of the 2010s, during which asset values constantly rose and capital costs fell, would not return anytime soon. He cited data centres and senior living as examples of strong performance.
Jeff DiModica, President of Starwood Property Trust, expressed more caution. He noted that the market would have to digest the movement of long-term interest rates into the 5 per cent range. This is happening simultaneously with managing hundreds of billions of dollars in debt related to data centre development. DiModica remarked that in previous eras, the market could perform well even with high interest rates, thanks to strong growth, real estate cash flows, and rising incomes. However, he fears this is not currently the case: 'Interest rate movements are typically bad for real estate, as real estate is very closely tied to interest rates.'
