Tim Koltermann

The short term data dependency of the treasury market makes no sense to me, particularly as it all seems to hinge on just one variable - inflation. I post below today’s comments from the UBS Chief Economist Paul Donovan whom I read daily (a byproduct of my prior life before multifamily). Please notice these two terms: “Imprecise data”, and “the fictional owners’ equivalent rent”, something we know well in the multifamily world. “Federal Reserve Chair Powell is not an economist. Not everyone can be an economist, but central bank heads probably should be economists. Yesterday, Powell stated reaching 2% inflation was taking longer than expected. The US PCE deflator is 2.5% y/y, the core PCE deflator is 2.8% y/y, and harmonized inflation is 2.4% y/y. Imprecise data means most economists regard a 2% inflation target as meaning a 1%-to-3% range. The fictional owners’ equivalent rent may be taking longer than expected to reach 2%, but that is not the same thing as inflation. Powell has never articulated a medium-term policy framework beyond “data dependency”. Keeping interest rates higher for longer will do nothing to reduce owners’ equivalent rent (it might increase it). Higher for longer might make durable goods deflation worse. There is a risk that Powell might be more concerned with political presentation than good economics.”

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Escalating interest rates drive investors to seek higher yields, prompting a stark reality: in the face of soaring vacancy rates and absence of long-term tenants, devaluing real estate emerges as the only strategy to retain investor confidence. The vicious cycle unfolds. As real estate is devalued to appease investors, debt ratios skyrocket. Meanwhile, record-high interest expenses leave real estate funds struggling to stay afloat. Extend loan maturities and pretend [inflating real estate valuations] might delay but not resolve, this crisis. #realestate #finance Source : Financial Times

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Family Offices Are Boosting Allocations to Alternative Investments (Private Equity, Private Credit, Real Estate) 1) In 2024, KKR’s survey of 75 family offices, 52 percent of their portfolios were to be invested in alts, up from 42 percent in 2022. The expansion is coming at the expense of all or most other asset classes. 2) Family offices, like other alts investors, think 2024 will be a standout vintage year. Interest rates remain higher and are expected to force distressed assets / companies to sell or recapitalize, even as the economic outlook improves. 3) “They understand the benefits the illiquidity premium plays in compounding capital in a tax efficient manner to build wealth for future generations,” Henry McVey, the head of global macro and asset allocation at KKR and the CIO of the firm’s $39 billion balance sheet. Read the full article here -> https://lnkd.in/gYbTjf8H #familyoffice #wealthadvisor #wealthmanagement #capitalallocation #alternativeinvestments #realestate #privateequity #privatecredit

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Appraisers in the U.S. need better tools that allow them to use more judgement in valuing assets. My colleague Willem Vlaming has been developing work showing that in parts of the world with low market liquidity and few comparable sales, that appraisal teams have been better able to capture the decline in asset values. http://ms.spr.ly/6040Yw5ts MSCI Real Assets #CRE

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The CMBS market has made a remarkable comeback in the first five months of 2024, with U.S. private-label CMBS issuance skyrocketing to $32.2 billion, up from $13 billion during the same period in 2023. This resurgence highlights the critical role of CMBS in commercial real estate (CRE) lending, now accounting for 14% of all U.S. CRE lending. Despite rising defaults, CMBS is effectively bridging the liquidity gap left by commercial banks. Major players like Goldman Sachs, Bank of America, and Blackstone are driving this growth, leveraging their substantial balance sheets to meet the increasing demand for securitized loans. With narrowing spreads and a favorable interest rate environment, CMBS continues to be a crucial source of capital for CRE borrowers and investors, offering a reliable alternative in a challenging market landscape. As the market adapts to changing economic conditions, CMBS stands out as a resilient and indispensable component of the CRE financing ecosystem. #CMBS #RealEstate #Finance #CRE #Investment #MarketTrends #EconomicRecovery #CapitalMarkets #CommercialRealEstate https://lnkd.in/eNYvb9Xv

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Per the KKR Report - "The once-in-a-decade opportunity for real estate equity investors is complex, but also exciting. It’s time to start thinking of fear as a friend." Institutions are starting to recognize what we saw early last year. We launched our ATX Fund last year to take advantage of the market shocks. Our investment strategy: 1. Market-Impacted Properties: Properties with sellers that have been affected by dramatic and sudden interest hikes with maturing and/or floating debt and impacted by higher insurance costs, G&A, and/or property taxes. We believe there is a relatively short window to take advantage of this economic environment. 2. High-Growth Markets- Markets with strong population and job growth compared to broader averages. 3. Downside Protection- Investments with strong in-place cash flow to protect against economic uncertainty, while avoiding exotic or aggressive leverage. 4. Middle-Market Deals- Deals requiring $5-20 million of equity largely fly under the radar of institutional investors. 5. Long-Term Investment- Investments are analyzed within a 5 and 10-year context. This horizon helps us avoid myopic investments and look past short-term trends that distort forecasts. To those currently invested in real estate that may be struggling, the KKR report mirrors my view on holding firm where it makes sense: "multifamily real estate owners who can carry their investments through the next two years are poised to benefit from sustained structural demand and a pronounced shortage of new supply starting in 2026." https://lnkd.in/ePTVZDZX

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#goldmansachs has closed a $7B fund for #realestate #privatecredit which is part of the broader trend of private credit funds for real estate. Is this an indicator of the commercial real estate distress on the horizon? Will this solve the problem or delay the inevitable creating #zombieassets? Are the funds/companies ready to own and operate the underlying assets with the right #tech #systems and #processes? https://lnkd.in/eQq7c72r

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A tale that reflects the illiquidity issue, the debt issue and the valuation issue in private assets. This CRE issue has been tipped to change since 2021 it has only further declined. The interconnectedness of the private asset issue is concerning, particularly around the use of debt to meet liquidity needs but also to boost returns in the absence of favourable markets to sell assets into to. The managed valuations process is a systemic issue that will have serious repercussions on the debt issue and the lenders behind these projects. FINRA even had to warn firms to stop suggesting they were insisting on a return to the office 5 days a week, as evidence, mandates, declining real incomes and experience mean that WFH has established itself at these levels. #financialadvice #wealthmanagement #assetallocation

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Need a high level of industry knowledge to pick the best CRE credits. Neither is easy but to Bruce Richards point, fewer levers in CRE elevates the importance of expertise and experience in selecting credits/borrowers.

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CRED iQ's latest analysis reveals that 38.6% of CRE CLO loans are on the servicer's watchlist, with an overall distress rate of 46.3%. Floating DSR Triggers are the primary cause, with pending maturity or ARD being the largest category. Outstanding CRE CLO loans total approximately $75 billion, mostly structured with floating rates and 3-year terms. Notably, distressed assets like Desert Gardens, a multifamily property in Glendale, AZ, are emerging due to factors like decreased occupancy and increased interest rates. We are actively seeking distressed assets across all asset classes, this data offers valuable insights into potential opportunities within the CRE CLO market. https://lnkd.in/eK7RZ4iZ

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The propensity of potential commercial real estate defaults continue to rise with CMBS pay-off rates being at their lowest in almost 20 years. the questions are how will the banks (particularly regional banks) navigate this challenge, and what are the reverberating repurcusions on other assets held on balance sheets, particularly MBS. https://lnkd.in/gNHdqHCq #morgages #mortgage #commerical #banks #balancesheet #rates #default #fed #federalreserve #banking #economy #CMBS #MBS

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Active conduit CMBS loans originated before 2023 have a median coupon rate of 4.5%, while loans originated since the start of 2023, when short-term rates climbed above previous 20-year highs, have a median coupon rate of 7.1%. While rate cuts should help ease some of the burden, but the magnitude of rate cuts the Fed is projecting is too slow to fully alleviate the market. For short-term rates to approach the near zero environment many active loans were originated in, it would likely need to come with a deterioration in the U.S. economy, which would bring a host of new problems for the Commercial Real Estate markets.

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Banks are reaping the rewards of a historic surge in corporate debt issuance in the US. Goldman Sachs reported an impressive nearly 40% surge in debt-underwriting revenue in the first quarter alone, contributing significantly to its robust earnings. Citi, JPMorgan Chase & Co. and Wells Fargo also saw strengthened profits, driven by the remarkable increase in corporate borrowing. This surge in debt sales has been propelled by various factors, including shifting expectations around Federal Reserve interest-rate cuts and a resurgence in merger activity. However, there are concerns that the pace of issuance may taper off in the coming months, as companies have expedited their debt offerings to capitalize on current market conditions. Despite potential regulatory hurdles, the outlook for mergers and acquisitions remains positive. Goldman Sachs CEO David Solomon maintains optimism regarding continued debt underwriting activity this year, citing a favorable issuance environment and heightened acquisition financing as key drivers. #Growth #CorporateBorrowing #Finance #Business #Bonds #Underwriting I Bloomberg News I Caleb Mutua

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Investors led by Starwood Capital Group are exploring a potential buyout of ESR Group, a major Asian warehouse developer, sources familiar with the matter revealed. Talks are underway with minority shareholders to assess interest in a take-private deal, with the possibility of some investors retaining stakes. However, decisions are pending, and an official announcement is yet to be made. This move reflects a trend of increasing take-private transactions in Hong Kong, injecting vitality into the region's dealmaking landscape. Notably, ESR's significant presence in logistics and data centers aligns with Starwood Capital's strategic focus on these growth sectors. While both companies have refrained from commenting, discussions indicate the potential for significant developments in the near future. #Buyout #Growth #Investment #Warehouse #RealEstate #HongKong I Bloomberg News I Dong Cao I Pei L. I Manuel Baigorri I Low De Wei (Dexter)

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# How Hedge Funds Benefit from Investing in Distressed Properties Investing in distressed properties isn't just about giving buildings a second chance; it's about recognizing untapped potential and transforming financial landscapes. Hedge funds, in particular, find this investment avenue to be a compelling strategy. Here’s why: ### High Returns, Low Entry Costs Distressed properties often come at significantly reduced prices. This allows hedge funds to: - **Acquire assets at a fraction of their market value.** - **Unlock substantial returns upon revitalization or resale.** ### Portfolio Diversification Investing in distressed assets provides hedge funds with diversification, balancing out the risks associated with other financial instruments: - **Creating a more resilient portfolio.** - **Hedging against market volatility.** ### Value Creation Opportunities Distressed properties offer unique avenues for value creation through: - **Renovation and enhancement projects.** - **Strategic repositioning in thriving market sectors.** ### Social Impact Revitalizing distressed properties isn't just lucrative; it benefits communities: - **Enhances neighborhood aesthetics and safety.** - **Increases local economic activity.** ### Mitigating Risks Successful investments in distressed properties hinge on: - **Expert analysis and due diligence.** - **Strong management capabilities.** ### Examples of Gains Several hedge funds have realized significant benefits from this strategy: - **Turning underperforming assets into high-demand real estate.** - **Capitalizing on market rebounds in historically undervalued locations.** ### A Long-Term Win Investments in distressed properties can result in: - **Steady cash flow from rental yields.** - **A robust capital appreciation trajectory over time.** ### Conclusion The distressed property market isn't just a playground for optimistic speculators. With the right strategy, hedge funds can uncover hidden gems that provide substantial financial returns and contribute positively to community redevelopment. Are your investment strategies bold enough to embrace these opportunities? The potential is vast, the rewards immense, if you dare to see beyond the surface. ### Let's Discuss Ready to explore how distressed property investments can fit into your hedge fund portfolio? Let's connect and drive opportunities that shape not just your bottom line, but the future of our communities. #Investing #HedgeFunds #DistressedProperties #RealEstate #PortfolioDiversification #ValueCreation #CommunityImpact #FinancialStrategy

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NEPI Rockcastle has reported double digit growth in net operating income (NOI), up 9.4% on a like-for-like basis, with tenant sales having increased by 10% during Q1 2024 versus Q1 2023. All product categories recorded higher sales, except ‘Sporting Goods’ (-2.3%) with the best performing categories ‘Health & Beauty’ (+19%) and ‘Services’ (+18%). Fashion, the largest segment, saw sales increase by 9%: https://bit.ly/3UFjiMx #nepirockcastle #commercialrealestate #europe #realestateinvestment #propertyfund #realestatenews #propertydevelopment #propertyowners #landlords #retailrealestate #assetmanagement #shareholders #investorrelations #propertynews #poland #listedcompanies #JSE

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If you want a short history of the #kkr real estate business and some insights on where we're going (plus the man who leads our business), then spend 5 mins reading this

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As of June 2024, the status of distressed assets in the U.S. commercial real estate market is concerning but varies by sector. **Current Trends and Data**: 1. **Rising Delinquency Rates**: The delinquency rates for commercial mortgage-backed securities (CMBS) have increased significantly. As of May, the CMBS delinquency rate rose to 1.85%, reversing three months of declines and indicating growing financial stress in the market [[❞]](https://lnkd.in/gSqurVTG). 2. **Sector-Specific Distress**: Different commercial real estate sectors are experiencing varied levels of distress. Office properties are particularly hard-hit due to high vacancies and refinancing challenges. Retail properties have the highest delinquency rates at 6.7%, followed by lodging at 4.3%, and office properties at 4.0%. There is also emerging distress in the multifamily sector, driven by aggressive investment strategies that may not account for higher debt costs [[❞]](https://lnkd.in/g9cfT5jE). 3. **Loan Maturities and Refinancing Challenges**: A significant wave of commercial loans is set to mature over the next few years, totaling over $1 trillion. Many of these loans are interest-only and will face refinancing difficulties in the current high-interest rate environment, leading to more distressed assets [[❞]](https://lnkd.in/gSqurVTG) [[❞]](https://lnkd.in/gCyhphig). 4. **Strategies and Workouts**: Lenders are increasingly engaging in workouts and loan modifications to manage distressed assets. Rather than opting for foreclosures, lenders prefer to work with borrowers to return loans to performing status. This includes extending loan terms and negotiating new terms to avoid outright property repossession [[❞]](https://lnkd.in/g9cfT5jE). 5. **Potential Market Impact**: The impact of distressed assets is expected to unfold over the medium to long term, with a significant increase in distressed sales anticipated to begin in 2024 and continue for at least two years. The slow resolution process and ongoing economic challenges suggest that distressed assets will remain a prominent issue in the commercial real estate market [[❞]](https://lnkd.in/gQWtbC_7). Overall, the commercial real estate market in the U.S. is facing significant distress, especially in the office and retail sectors, with a considerable amount of loans coming due and refinancing challenges exacerbating the situation. Lenders and borrowers are working on creative solutions to manage and mitigate these challenges, but the market outlook remains cautious. #distressedassetgroup dag@stewart.com

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