Andrii Yalanskyi
By Matthew Wolpert, CFA
While macro risks abound, we think 2023 could offer compelling opportunities for long-term real estate investors to provide timely liquidity in a challenging market.
Last year was certainly full of surprises—from rising inflation and interest rates to geopolitical turmoil and slower GDP growth—and 2023 will likely bring its fair share, too. Yet when uncertainty is high, we believe hard assets like real estate can provide particularly appealing opportunities for discerning investors.
We think some of the current trends driving rates higher could also support long-term real estate values, as inflation boosts rents and costly capital keeps a lid on new supply and increases replacement costs. However, a combination of risks—including limited transaction activity, higher debt costs, and a slowing economy—suggests the sailing will unlikely be smooth in the near term.
In late 2022, year-over-year transaction volumes dropped 37%, 49%, and 68% in September, October, and November, respectively.1 Less activity generally thwarts price discovery, which can attract fewer bidders and can lead to lower prices. And despite some recent stabilization, debt costs ended 2022 far higher than where they started, with 10 year AAA CMBS spreads now at 175bps versus 94bps last January.2 As for the broader economy, real GDP growth—which, we believe, tends to be correlated to unlevered cash-flow growth—is expected to slide to 0.3% in 2023 from 1.9% in 2022.3
These real risks notwithstanding, we believe 2023 could potentially offer compelling opportunities for selective long-term real estate investors able to provide precious liquidity for property owners faced with maturing debt in a difficult environment, as well as for open-ended investment vehicles forced to navigate increased redemptions. In addition, we believe the underlying drivers of value in this asset class—including population growth, strong capital structures, and solid business plans—should outweigh current macroeconomic challenges over the long term.
At Almanac, we are excited about the opportunity to deploy capital in this uncertain—yet potentially fruitful—investment environment.
1Real Capital Analytics as of 12/21/22; 2Commercial Real Estate Alert as of 12/16/22; 3Bloomberg as of 1/3/23.
This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Investment decisions and the appropriateness of this material should be made based on an investor’s individual objectives and circumstances and in consultation with his or her advisors. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. The firm, its employees and advisory accounts may hold positions of any companies discussed. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed.
Discussions of any specific sectors and companies are for informational purposes only. This material is not intended as a formal research report and should not be relied upon as a basis for making an investment decision. The firm, its employees and advisory accounts may hold positions of any companies discussed. Specific securities identified and described do not represent all of the securities purchased, sold or recommended for advisory clients. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. Any discussion of environmental, social and governance (ESG) factor and ratings are for informational purposes only and should not be relied upon as a basis for making an investment decision. ESG factors are one of many factors that may be considered when making investment decisions.
Commodity futures and forward contract prices are highly volatile, and the commodity markets can also lack sustained movements of prices in one direction, whether up or down, for extended periods. Participation in a market that is either volatile or trendless could produce substantial losses. Price movements of commodity interests are influenced by, among other factors: changing supply and demand relationships; governmental, agricultural and trade programs and policies; climate; and national and international political and economic events. None of these factors can be controlled by the manager.
Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.
This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclosure-global-communications for the specific entities and jurisdictional limitations and restrictions.
The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.
© 2009-2023 Neuberger Berman Group LLC. All rights reserved.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Be the first to comment