Finance & Economy

Real Estate

State of CRE: Expert outlooks on debt, equity, and investment sales

November 17, 2021

State of CRE: Expert outlooks on debt, equity, and investment sales

We brought together three Walker & Dunlop leaders and experts to provide 360 views of the CRE markets.

There was a lot of information to absorb on this week's Walker Webcast! We brought together three Walker & Dunlop leaders to provide 360 views of the CRE markets. Kris Mikkelsen, Executive Vice President of Investment Sales, Aaron Appel, Senior Managing Director of Capital Markets, and Ivy Zelman, Executive Vice President of Research and Securities, all came prepared.

 

To begin the webcast, each panelist answered three commercial real estate related questions: What is mispriced today? What word best describes their feelings about the market in 2022? If you had $100 million to invest today, where would you put it? Then, the group touches on the transition of the market from large asset managers looking for 20% IRRs to those looking for a 5% yield. Kris elaborates on the reality of the efficiently priced market and the double-digit rate growth of the multifamily space. Return expectations have dramatically shifted. 

Ivy and her colleagues have been surprised to see new single-family move-in rent growth approaching 20% across the U.S. Developers are now focused predominantly on suburbia, and Ivy expects a new supply to be on the horizon. While eviction moratoriums are being lifted, there will be less pricing power to be held. During the pandemic, asset classes such as retail and hospitality took huge hits, but rescue capital is now becoming available. 

Speaking of the impact of the pandemic, data shows that post-COVID, many women and people aged 65+ older are not planning to return to the workforce. As a result, companies are raising wages up to 25%. To compensate for the wage growth, rent prices will also continue to increase. Well-located and newly renovated units will thrive in the rental market as we move forward, whereas older and poorly located buildings will struggle. By spring of next year, there is likely to be much more activity as we hopefully see COVID in the rearview. 

Then, Ivy discusses the impact that work-from-home has had on the housing market. When employees aren’t heading to the office, they are saving money on their daily commute expenses. COVID brought about the rush to leave densely populated markets and the second home market skyrocketed. Regarding build-for-rent products, many available today are simply unaffordable and sometimes even more expensive than the for-sale product. 

Touching on legal immigration, Ivy believes the cap for those allowed to enter the country should be raised substantially to solve the issues of demand the U.S. will be facing. The number of people between the ages of 20-39 was surprisingly larger from 2010 to 2020. Thus, more young people are living at their parents' house for longer. Numbers show Americans are shifting towards a multi-generation lifestyle. Similarly, Aaron says ownership is less of a value among upcoming generations than it used to be. In closing, they each identify where there is opportunity in the market today. 

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