2022 Spring Issue - 30

developments
McCoy Symposium:
Looking for
Bright Spots and
Opportunities in
Commercial Real
Estate for 2022
With a growing risk of recession
in the next 18 months, U.S. commercial
real estate faces uncertainty
but remains attractive to investors
seeking yield and stability, two
experts said during a recent ULI
webinar.
Ken Rosen, chairman of Rosen
Consulting Group, and Roy March,
chief executive officer of Eastdil
Secured, were the keynote speakers
at the 28th annual ULI/McCoy
Symposium, held in December.
During the webinar, they presented
their views on what has changed
since that event and what has
remained the same for U.S. commercial
real estate despite the Omicron
variant wave of COVID-19 and
the Russian invasion of Ukraine.
ULI global chief executive officer Ed
Walter was moderator.
Rosen said the good news is that
the world is entering the " coexistence "
phase of the pandemic,
though inflation fears in the United
States are likely to rattle markets at
least through the end of this year.
" Inflation is far more than transitory, "
said Rosen, referencing the
view of the U.S. Federal Reserve
Board from early 2021. Since the
McCoy Symposium, indications
have been that the Fed will raise
key interest rates in March and end
its bond purchasing program.
The potential exists for a
March said that despite all that
" messy " capital markets correction
as the Federal Reserve takes
aggressive action to constrain inflation,
he said. He noted that residential
rents and home prices are
surging at historic rates.
Rosen's forecast calls for inflation
to be lower this year than last,
but still elevated at 6.5 percent,
compared with 2.3 percent in 2019.
Some of the inflation on the real
estate side has not showed up yet
in the Consumer Price Index, he
said. He also noted that construction
costs alone jumped 16.9 percent
last year.
On a positive note, hiring has
boomed in cities in Texas and
the Mountain states, Rosen said,
though it is still lagging in New
York, California, and Illinois. Even
the Carolinas, Tennessee, and Georgia
are seeing inflows of domestic
migration, as are parts of Florida.
The resumption of legal immigration
to the United States could add
more than a half million people
to coastal cities, Rosen said. Later
in the webinar, March added that
about 3 million American workers
are still on the sidelines, so they
could also stimulate job markets,
with job openings sitting at historic
highs.
On the demographics side,
A farmer's market in Boise, Idaho, one of the cities where
home prices and hiring have exceeded pre-pandemic levels,
panelists said during a recent ULI webinar.
Rosen said the 35-to-54 age cohort,
the prime group forming households,
will grow more than 10 percent
this decade, as will the group
55 and older, while the cohort
under age 35 will grow at a slower
rate, closer to 1 percent.
For investors, Rosen emphasized
the need for stress testing portfolios
over the next three years,
locking in gains, and hedging costs
as interest rates rise.
30
URBAN LAND
SPRING 2022
has changed since December,
U.S. assets remain attractive in a
world starved for yield, with both
Germany and Japan having negative
short-term interest rates. Also,
investment in U.S. commercial
real estate from South Korea has
reached $5.4 trillion in 2022.
All traditional lenders such as life
insurance companies, commercial
mortgage-backed securities, and
banks are well capitalized, March
said, and U.S. banks are potentially
looking to place $3 trillion in loans
across the economy to make their
profit margins on existing deposits.
In other positive numbers, real
estate transactions rose 37 percent
in 2021 from 2019 levels, with multifamily
and industrial leading the
way. And delinquencies were down
55 percent from 2020 to the end of
2021, though office delinquencies
increased slightly year over year.
Nontraded real estate investment
trusts had their best year on record
in 2021 at $36.5 billion in investor
inflows, March pointed out. With
leverage, that translates to $70
billion to $80 billion per year in
purchasing power.
March also noted that though
U.S. stock markets have been weak
since Labor Day 2021, commercial
real estate returns have remained
consistently strong.
The McCoy Symposium, which
was held in person in New York
City, is named in honor of ULI Life
Trustee Bowen H. " Buzz " McCoy.
A recording of the webinar is
available on knowledge.uli.org.
BRETT WIDNESS is the online editor of
Urban Land.
SHUTTERSTOCK
http://knowledge.uli.org
2022 Spring Issue

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