Real Estate News

Published on Wednesday, April 7, 2021

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For example, demand for industrial product was also more selective and deals in general focused more on lower cost-of-living markets.

Big money investment deal volume was down 34% last year, marking the most significant decrease in activity over the last decade for the largest institutional money managers with CRE allocations in their portfolios. <

A new report from Reonomy highlights a series of market shifts underpinning big money investment activity, noting that pandemic-era deals focused more on lower-cost-of-living markets. Cities like Charlotte, Minneapolis, and Nashville also saw considerable increases in big money investments, but those markets still remained out of the top 10 for portfolio allocations in 2020.  And while the declines in investment in markets like Washington, D.C., San Francisco, Miami, Dallas, and Houston is hardly unexpected, the report had some surprises: Atlanta and Boston, for example, saw big money investment activity increase year-over-year and when compared against their 10-year average allocations.

Property type also mattered when it came to attracting big money investment, the report notes, with the public markets feeling the most pain as special servicing and delinquency rates skyrocketed and hospitality REIT share prices took a hit. “Big Money investment activity into hospitality properties during the year also corroborated this ‘hardest hit’ narrative,” the report notes: on average last year, big money invested a mere $3.82 out of every $100 into the asset class, down from $8.59 the year before. But despite that, on the whole investment in hospitality properties was consistent with the 10-year historical average dollar volume (3.6%) allocated to the sector. Big money managers acquired more than $939 million in hospitality space last year, down 70% compared to 2019, and the average price sank 59% year-over-year, changes Reonomy suggests are “suggestive of a shift away from higher quality product (e.g., less full-service and more budget or economy) and deep discounts on distressed properties.”

Demand for industrial product was also more “selective,” analysts say, and big money investment in the product type was down over 2019 levels. But despite that, the aggregate investment in the asset class was just below the 10-year historical average dollar volume. Notably, “it does not appear that the big price increases through 2020 for industrial space was driven primarily by Big Money who appear to be more selective when allocating their industrial investment dollars,” the report notes.

Multifamily continued to draw interest, with big money managers allocating $27.42 of every $100 of new investment into the property type in 2020 and focusing their attention increasingly on the affordable housing subclass.

“While the historical stability of operating cash-flows certainly made this property type more attractive during the pandemic, the increase in Big Money investment into multifamily was most likely driven by the robust lending and cheap financing provided by the government sponsored enterprises (GSEs),” the report notes. “While other sources of financing slowed down during 2020, the GSEs picked up pace, keeping the multifamily markets much more active.”

While office had a particularly anemic year, investment activity by big money managers showed they’re keeping the faith. In all, those managers allocated

$42.85 of every $100 of new investment into the office asset class through 2020. They <

bought 37.2 million square feet of office space during the pandemic, only 4% less than they bought the year earlier; and on average they paid 12% more per square foot acquired and sought high-quality office assets in locations like New York, Los Angeles, Boston, Seattle, San Jose. This, the report says, “suggests that these managers anticipate a meaningful return to the office.”<

And finally, “retail is down, but not out,” Reonomy maintains. The property type accounted for 10.8% of properties acquired by big money managers last year, up 120 bps from 2019. Big money acquired over $1.2 billion of retail space covering 12.2 million square feet, and Brookfield, accounted for 40% of those deals.