January kicked off with three industry conferences across the country: the CRE Finance Council (CREFC) in Miami, the Americas Lodging Investment Summit (ALIS) in Los Angeles, and the National Multifamily Housing Council (NMHC) in San Diego. These events brought together thousands of investors, developers, financiers, and related parties. Below are key takeaways from sessions, meetings, and discussions with participants.
- Insurance companies are ready to deploy a new year of allocations. Banks will be less active, creating opportunities for other sources of capital.
- Debt funds remain on the hunt for deals. Those in need of capital are having a hard time making the higher cost of debt pencil.
- Investors are getting creative. Debt strategies, whether direct or indirect, investment throughout the capital stack, creating private REITs, investing in REITs, targeting loan maturities, and construction loans were all topics of discussion.
- Distress will result in conversion opportunities. However, office-to-residential only accounts for about one-third of housing conversions. Hospitality and industrial are also sources of housing creation.
- Debt maturities, deferred maintenance, and incomplete PIPs are catalysts for transaction activity in 2024.
- Flight-to-quality continues. Credit spreads are compressing in quality assets with best-in-class sponsorship.
- Distressed short-sale opportunities are emerging. Lender-led processes are creating a value reset along with overdue CapEx needs, rising fixed costs, and more expensive financing.
- Easing international travel restrictions, increasing short-term rental regulations, and work travel look to backfill softening leisure demand. RevPAR is at all-time highs.
- The capital markets uncertainty over the past two years is diminishing, and the focus is now on fundamentals and asset pricing.
- The market is still adjusting and adapting to more expensive capital for an extended period.
- With construction starts falling, once the wave of deliveries is completed, there is a window of future rent growth in 2025 and beyond.
- A gap between buyers and sellers still exists, and there is debate on how big of an opportunity loan maturities and distress will present.